5 Key Economic Trends and the Critical Questions They Raise for Philadelphia

Employment, remote work, and housing will play a decisive role in the city’s prospects for an equitable pandemic recovery

Issue Brief June 22, 2022 Read time:

Projects: Philadelphia Research and Policy

Overview

This is a pivotal moment for Philadelphia. More than two years into the COVID-19 pandemic, the decisions local leaders make now—about attracting and retaining residents, bolstering the workforce, and adjusting tax structures to reflect new realities like remote work—will greatly affect Philadelphia’s ability to thrive and become a more equitable city.

This brief, the fourth in a series examining Philadelphia’s fiscal future, focuses on where the city stands at this point in the pandemic, the employment and economic trends that Pew has identified to date, and the trends’ impact.

These trends include:

A lag in the city’s employment rebound.
A decline in the number of people in the workforce.
A continuing high level of remote work in white-collar sectors.
Ongoing strength in the local housing market.
A recovery that is not showing signs of producing an economy that benefits all city residents.

Based on research and analysis done by Econsult Solutions Inc., this brief analyzes these trends; examines the degree to which they have national, urban, and Philadelphia-specific dimensions; and highlights five key questions that these trends prompt.

The goal of the “Philadelphia’s Fiscal Future” series, funded by The Pew Charitable Trusts in partnership with the William Penn Foundation, is to inform the choices that await local policymakers as they consider how to foster equitable growth in the city while also ensuring local government’s fiscal stability.

In the series’ first brief, Pew looked at how the pandemic has affected the city’s economy and discovered that Philadelphia was hit harder than much of the rest of the nation with lingering job losses that inflicted particular pain on low-income residents. The second brief presented four potential scenarios for Philadelphia’s economic performance over the next several years, with a gap of 70,000 jobs between the best and the worst. And the third examined how city tax revenues, and who pays them, would change under those four scenarios—with nearly $1.6 billion at stake over five years.

Pew will continue this research and track the answers to the questions raised in this brief as they emerge in the months and years ahead.

Will Philadelphia’s employment recovery continue to be sluggish?

In three of the four years before COVID-19 hit, Philadelphia outperformed the national economy in job creation.¹ That has not been the case since March 2020.

Over the past two years, the city’s job losses have been greater than the national average, with the gap closing somewhat in late 2021 and early 2022. (See Figure 1.) As of March 2022, the city still had roughly 6%, or 44,000, fewer jobs than when the pandemic began, at a time when the rest of the region’s percentage loss was only about half as big.

This pattern—slow recovery compared with the nation as a whole and with the surrounding region—is not unique to Philadelphia. New York, Washington, and Baltimore have all lagged the rest of the country in job creation, and both New York and Washington have underperformed their regions. On a city level, Philadelphia’s performance has been stronger than New York’s, about the same as Washington’s, and weaker than Baltimore’s. (See Table 1.)

Table 1

Employment Change in Cities and Regions, 2019-22

Numbers are in thousands

	City employment			Employment in rest of region
	Q4 2019	Q1 2022	Percentage change	Q4 2019	Q1 2022	Percentage change
Philadelphia	757	713	-5.8%	2,272	2,191	-3.6%
New York	4,737	4,373	-7.7%	5,382	5,074	-5.7%
Washington	803	757	-5.7%	2,578	2,490	-3.4%
Baltimore	382	367	-3.8%	1,063	1,016	-4.5%
National				152,814	146,862	-2.6%

Note: Region is the Metropolitan Statistical Area as defined by the U.S. Census Bureau.

Source: U.S. Bureau of Labor Statistics, Current Employment Statistics

Research indicates that lagging employment recoveries for cities, in particular, may be linked to factors such as the sector mix of urban economies, the reliance on visitors and in-commuters to generate demand for support businesses, the lingering fear that the virus spreads more readily in dense environments, and stricter policies in some cities concerning health restrictions and business closures.² In addition, the fallout from COVID-19 has made it harder for employers to fill low-wage jobs, with fewer people willing to take these positions because they have found better, higher-paying jobs—or have increased caretaking responsibilities at home or other pandemic-related disruptions in their lives.

Whatever the reasons, Philadelphia now has a smaller economy than it did pre-pandemic. As shown in Table 2, nearly every sector shrank from the fourth quarter of 2019 to the same quarter of 2021, with leisure and hospitality hit the hardest. Wholesale trade was the exception; it remained the same size and was the only sector that did better locally than nationally.

Table 2

Employment Change by Sector in Philadelphia, Q4 2019 to Q4 2021

Job totals in thousands

Sector	Philadelphia employment in thousands, Q4 2019	Philadelphia employment in thousands, Q4 2021	Numeric change in thousands, 2019-21	Philadelphia percentage change, 2019-21	National percentage change, 2019-21
Total	757	719	-38	-5%	-2%
Health care and social assistance	172	167	-5	-3%	-2%
Government	108	104	-3	-3%	-3%
Professional and business services	107	106	-1	-1%	2%
Leisure and hospitality	78	64	-13	-17%	-11%
Educational services	76	73	-3	-4%	-2%
Finance and information	59	56	-3	-5%	0%
Retail trade	50	48	-3	-5%	0%
Transportation and warehousing	31	29	-2	-8%	9%
Other services	29	26	-3	-9%	-5%
Manufacturing	19	19	0	-2%	-2%
Wholesale trade	15	15	0	0%	-3%
Construction	12	12	-1	-4%	-2%

Note: Sector employment numbers for Q4 2019 do not add up to 757,000 due to rounding.

Source: U.S. Bureau of Labor Statistics, Current Employment Statistics

How worrying is the decline in the workforce?

An element that may hinder the local economy’s ability to create and fill jobs is the decline in the size of the workforce—i.e., the number of people working or looking for work. This appears to be both a national and a local problem.

In the last three months of 2021, some 718,000 Philadelphians were in the workforce, down from 738,000 in 2019, or about 2.7%, which was greater than the 1.5% drop nationwide.³

Workforce participation in Philadelphia was already low before the pandemic, with only 72% of city residents ages 16-64 in the workforce, compared with 75% nationally.⁴ Participation rates tend to be lower in highpoverty cities. For instance, Baltimore, which has a slightly lower poverty rate than Philadelphia’s, also has a 72% workforce participation rate, while Detroit and Cleveland, which have higher poverty numbers, have workforce participation rates of 67% and 69%, respectively.⁵ And pre-pandemic national data indicated that individuals with lower educational attainment were less likely to be in the labor force than those with bachelor’s degrees or more education.⁶ In Philadelphia, more than 46% of adults ages 25-64 have high school diplomas or less education; the national average is about 38%.⁷

In addition, fewer people are in Philadelphia’s workforce because fewer people are living in Philadelphia. According to the census, the city’s population fell by nearly 25,000 from July 2020 to July 2021, a 1.5% drop fueled in part by an increase in domestic out-migration. (See Table 3.) Some other major cities experienced greater population declines, also stemming from such migration. For instance, Washington, Boston, and New York were all down in the 3% range over the same period.

Table 3

Population Change, 2020-21, Philadelphia and Other East Coast Cities

Increased domestic out-migration is a key factor

Philadelphia	1,601,005	1,576,251	-24,754	-1.5%	-28,226	-9,872
	Population July 1, 2020	Population July 1, 2021	Population change	Percentage change	Domestic net out-migration	Average annual net domestic out-migration, 2010-19
New York	8,772,978	8,467,513	-305,465	-3.5%	-342,465	-97,276
Suffolk County, MA (Boston)	795,431	771,245	-24,186	-3.0%	-28,850	-5,436
Washington	690,093	670,050	-20,043	-2.9%	-23,030	2,947
Baltimore	583,132	576,498	-6,634	-1.1%	-6,678	-6,793

Note: Population gain or loss is the result of three factors: domestic migration, international migration, and the difference between births and deaths. Only domestic migration is detailed here.

Source: U.S. Census Bureau, 2021 Population Estimates

Where will the level of remote work settle?

Remote work in white-collar sectors of the economy, a public health necessity in 2020 and for much of 2021, has proved to be more than a temporary adjustment.

Data provided by a major office security provider indicates that office occupancy in the Philadelphia metropolitan area in late May 2022 was about 38% of pre-pandemic levels, somewhat higher than it had been in the summer of 2021.⁸

A January 2022 survey of 114 downtown companies and organizations by the Center City District found that only 15% were operating fully in person five days a week; another 25% were still all remote; and the rest were in the office part of the time. Of the 16 firms in the survey that described themselves as having 201 or more employees, none said they had the goal of returning to full-time in-person operations. Employers said that one major reason for continuing with some level of remote work was to keep current workers happy and attract new ones.⁹

Other large cities are having the same experience. One study found that the share of remote work was more than twice as high in cities with high population densities than in lower-density locales.¹⁰

The persistence of remote work has numerous implications for city government finances. Pre-pandemic, more than 13% of Philadelphia’s general fund revenues came from wage taxes paid by nonresidents.¹¹ Those individuals are exempt from the tax when told by their employers to work from home rather than at their incity workplaces. In calendar year 2021, wage tax collections were down $133 million, or 6%, from the prepandemic year of 2019.

As shown in Table 4, more than three-fourths of the wage tax decline—$105 million—came in three whitecollar sectors: finance and information, professional services, and education, all of which pay relatively high wages and employ a relatively high proportion of nonresident workers.

Table 4

Philadelphia Wage Tax Revenues and Employment by Sector, 2019 vs. 2021

Tax revenues in millions of dollars, job figures in thousands

Sector	Wage tax revenue, 2019, in millions	Wage tax revenue, 2021, in millions	Employment, 2019, in thousands	Employment, 2019, in thousands	Percentage change, wage tax, 2019-21	Percentage change, employment, 2019-21
Health care and social services	$446	$447	170.8	166.2	0%	-3%
Government	$236	$253	105.2	103.2	7%	-2%
Professional services	$249	$226	104.2	102.2	-9%	-2%
Finance and information	$255	$192	58	56.1	-25%	-3%
Education	$198	$179	72	69.1	-10%	-4%
Manufacturing	$119	$110	19.4	18.4	-8%	-5%
Retail trade	$102	$110	49.1	47	8%	-4%
Hospitality and entertainment	$114	$87	76.2	60.9	-24%	-20%
Construction	$73	$69	12.4	11.1	-5%	-10%
Transportation and warehousing	$72	$69	29.6	28.2	-5%	-5%
Other sectors	$244	$233	43.7	41.5	-4%	-5%
Total	$2,108	$1,975	740.6	703.9	-6%	-5%
Professional services, finance and information, and education	$702	$597	234.2	227.4	-15%	-3%

Sources: City of Philadelphia Office of the Director of Finance (revenue figures); U.S. Bureau of Labor Statistics (employment figures)

Table 5 highlights the impact of remote work by nonresidents by juxtaposing the change in wage tax revenues in two sectors: finance and information, where remote work is relatively easy to perform; and health care and social services, where little remote work is possible.

From 2019 to 2021, employment fell by 3% in each sector. But the wage tax numbers were dramatically different. In health care and social services, wage tax revenues were unchanged. In finance and information, they dropped by 25%.

Table 5

The Philadelphia Wage Tax: A Tale of Two Sectors

Tax revenues in millions of dollars, job figures in thousands

Sector	Wage tax revenue, 2019, in millions	Wage tax revenue, 2021, in millions	Employment, 2019, in thousands	Employment, 2021, in thousands	Wage tax percentage change, 2019-21	Employment percentage change, 2019-21
Health care and social services	$446	$447	170.8	166.2	0%	-3%
Finance and information	$255	$192	58	56.1	-25%	-3%

Sources: City of Philadelphia Office of the Director of Finance (revenue figures); U.S. Bureau of Labor Statistics (employment figures)

The city’s new five-year plan assumes that 25% of nonresidents who were working in Philadelphia offices before the pandemic will not return to the office in the foreseeable future.¹²

In addition, the persistence of remote work is likely to decrease the demand for office space, which will affect leasing rates, thereby leading to lower value assessments for office buildings and thus lower commercial property tax revenues. That is not currently factored into the five-year plan. And, of course, fewer people in offices means lower levels of commercial activity, meaning less in sales, beverage, and parking tax revenues. (These negative impacts could be offset by converting some office space to other uses, such as residential, although the layouts of office buildings—among other factors—can make such conversions difficult and expensive.)

For all these reasons, the long-term level of remote work will affect city finances and the service businesses that rely on people working in office buildings.

Where does the city’s strong housing market lead?

One might expect that the challenging labor market situation and the population decline would lead to a softening in Philadelphia’s residential real estate market. That has not been the case.

Housing prices in the city were up 23% from 2019 to 2021, and sales rose 14%.¹³ Over the same period, home prices nationally went up about 28% as well, and sales rose 15%.¹⁴

In addition, rents increased, also at a slower pace than the national average—up 5.5% in Philadelphia for the two years ending in December 2021, compared with 15.9% nationally. (See Figure 2.)

And the city’s housing supply will be increasing. In 2021, Philadelphia issued permits for more than 26,000 housing units; 87% of the permits were for buildings with five or more units. (There is, of course, no guarantee that all of the units will be built.)

To some extent, the surge in permits was motivated by changes in city policy that made it more advantageous for developers to get their permits by the end of 2021. Still, the numbers were impressive; in the prior 20 years combined, permits had been issued for only 50,400 units in total.¹⁵

The increase in sales prices and rents—combined with the pending arrival on the market of many higher-priced new units—raises concerns about affordability. A 2020 Pew study found that 40% of Philadelphia households were already cost-burdened when it came to housing, meaning they spent at least 30% of their income on items including rent, mortgage payments, utilities, insurance, and property taxes.¹⁶

Even with the recent increases in home prices and rents, median housing costs in Philadelphia remain below those of some other major cities, especially others on the East Coast. Due to remote work, individuals now living in those more expensive markets may find Philadelphia an attractive alternative. From a property tax perspective, residential growth could help offset commercial losses while also attracting businesses, amenities, and jobs.

But an influx could also drive up prices in a way that would make the city less affordable for current residents.

A recent study done for the real estate company Redfin found that in-migrants to the Philadelphia region have, on average, 28% higher maximum budgets for home purchases than do residents of the region. This was the second-largest gap between in-migrants and residents, second only to Nashville, Tennessee.¹⁷

Given these trends, what are Philadelphia’s prospects for an equitable recovery?

The strong housing market and its possible implications, coupled with employment and other factors discussed in this brief, raise questions about Philadelphia’s ability to achieve an equitable recovery.

Gaps in labor participation by education level (with lower participation among high school graduates who never attended college) and in recovery by sector (with the greatest losses in sectors associated with lower wage levels, such as leisure and hospitality) have already disadvantaged Philadelphians with lower incomes, many of whom are people of color. Will a broader share of workers be drawn back into the labor force as conditions normalize and wages rise? Or will the changes driven by a reorganization of work activity deepen these disparities?

As is the case in so much of the COVID-19 economic story, the persistence of remote work in white-collar sectors is a central element on the equity front as well.

Many of the lost jobs that were available to residents lacking in strong educational credentials depended to some degree on having white-collar workers coming to their offices—and then going out to lunch, having drinks or dinner after work, patronizing nearby retail establishments, and so on. The degree to which these job losses persist remains to be seen. Some of the positions may be replaced by jobs in logistics and delivery services or by hospitality and retail jobs in city neighborhoods, with many Philadelphians no longer commuting to Center City either.

For now, at least, many highly educated white-collar workers are benefiting from the increased flexibility of remote work, while some less-educated workers—many of them people of color—are not.

And as noted in a previous brief in this series, having fewer nonresidents commuting into the city on a regular basis means that city residents, including those with lower incomes, will be shouldering an increased share of wage and consumption taxes.¹⁸ Philadelphians with annual household incomes of $25,000 already pay more in state and local taxes than their counterparts in the largest city in each state.¹⁹

Conclusion

Before COVID-19’s arrival, much of Philadelphia had been enjoying relatively good economic times, at least by Philadelphia standards, although that was less true for people of color. For several years, the city had been matching or outperforming the rest of the country in terms of job growth; and, though still high, the poverty rate had been coming down.

The shock of March 2020 brought all of that momentum to a halt, and COVID-19’s ongoing impact has exposed some of the limitations of the city’s economic growth. White-collar workers with higher incomes felt little impact, while service workers with lower incomes got hit hard and have been slow to recover. The focus now is on what happens next.

Several key indicators for major cities, especially in the Northeast and Midwest, are less than promising. But Philadelphia’s economic future is not preordained. Crucial questions, many of which have been discussed in this brief, remain to be answered.

To some degree, how the emerging trends play out may be largely beyond the control of local decision-makers in the public and private sectors. Even so, local leaders’ decisions about employment, housing, and taxes, among other considerations, will play a decisive role in Philadelphia’s ability to become a more equitable city.

About this brief

This brief was written by Larry Eichel, senior adviser to The Pew Charitable Trusts’ Philadelphia research and policy initiative, based on research performed for Pew by a team at Econsult Solutions Inc., led by Ethan Conner-Ross. Pew senior officer Sandra Shea edited the brief, along with Erika Compart, senior manager, editorial.

Acknowledgments

This brief is funded in part by The Pew Charitable Trusts with additional support from the William Penn Foundation. The brief benefited from the comments of two independent reviewers: Sylvie Gallier Howard, founder and CEO, Equitable Cities Consulting; and Sharon Ward, former director of the Pennsylvania governor’s budget office under Tom Wolf and currently a principal in a Philadelphia-based consulting practice with a focus on state policy. This analysis does not necessarily reflect the opinions of these reviewers or their institutions.

Endnotes

The Pew Charitable Trusts, “Philadelphia 2021: The State of the City” (2021), 71, https://www.pewtrusts.org/-/media/assets/2021/04/philadelphia-2021-state-of-the-city.pdf.
S.J. Cho, J.Y. Lee, and J.V. Winters, “Employment Impacts of the COVID-19 Pandemic Across Metropolitan Status and Size,” Growth and Change: A Journal of Urban and Regional Policy 52, no. 4 (2021): 1958-96, https://onlinelibrary.wiley.com/doi/10.1111/grow.12540.
U.S. Bureau of Labor Statistics, Labor Force Statistics From the Current Population Survey, https://www.bls.gov/cps; U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics, 2021, https://www.bls.gov/lau/.
U.S. Census Bureau, American Community Survey, 2019 One-Year Estimates, https://data.census.gov/cedsci/.
Among the 10 major cities tracked in The Pew Charitable Trusts’ annual “State of the City” reports, workforce participation has invariably been highest in lower-poverty cities such as Washington and Boston, and lowest in higher-poverty cities such as Philadelphia, Cleveland, and Detroit.
U.S. Census Bureau, American Community Survey, 2019 One-Year Estimates.
Ibid.
Kastle Systems, “Kastle Back to Work Barometer,” https://www.kastle.com/safety-wellness/getting-america-back-to-work/.
Center City District, “Remote or In-Office Work: How Downtown Firms Are Thinking About the Future,” Feb. 1, 2022, https://www.centercityphila.org/research-reports/remote-or-in-office-work-january-2022-survey-results.
L. Althoff et al., “The Geography of Remote Work” (National Bureau of Economic Research, 2022), https://www.nber.org/papers/w29181.
City of Philadelphia, “Five-Year Financial and Strategic Plan for Fiscal Years 2023-2027” (2022), 43, https://phlcouncil.com/budget2023. The document gives two numbers for the percentage raised by the nonresident wage tax: “more than 13%” on page 43 and “more than 14%” on page 46.
Ibid.
Center City District, “The Center Holds: Residential Resiliency 2022” (2022), https://www.centercityphila.org/research-reports/report-the-center-holds-residential-resiliency-2022.
National Association of Realtors, “Existing Home Sales” (2022), https://cdn.nar.realtor/sites/default/files/documents/ehs-02-2022-overview-2022-03-18.pdf.
U.S. Department of Housing and Urban Development, State of the Cities Data Systems: Building Permits Database, accessed April 15, 2022, https://socds.huduser.gov/permits.
The Pew Charitable Trusts, “The State of Housing Affordability in Philadelphia: Who’s Cost-Burdened—and Why” (2020), https://www.pewtrusts.org/en/research-and-analysis/reports/2020/09/the-state-of-housing-affordability-in-philadelphia.
D. Anderson, “Out-of-Town Buyers Have Nearly 30% More to Spend on Homes Than Locals in Migration Hotspots Like Nashville, Atlanta, and Miami,” Redfin, Feb. 15, 2022, https://www.redfin.com/news/migrant-local-budget-difference-homebuyer.
The Pew Charitable Trusts, “How Future Employment Patterns Could Put Philadelphia’s Operating Budget at Risk” (2022), https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2022/05/how-future-employment-patterns-could-put-philadelphias-operating-budget-at-risk.
Government of the District of Columbia, Office of the Chief Financial Officer, “Tax Rates and Tax Burdens in the District of Columbia—a Nationwide Comparison” (2021), https://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2019%2051City%20Study_Final.pdf.