(Credit: Article by Doug Rainey)

DECON First report: Are jobs created in Delaware going to Delawareans?

21.02.24 Delaware businesses continue to add jobs at a torrid pace. The net annual gain in total 12 month moving average employment is nearly 9,000, for a growth rate of 2%. This is a huge gain over the previous 12 month period employment growth rate of 0.8%. This leaves the state 10,700 jobs below the pre-recession peak, meaning that should the 2% pace continue, total employment in Delaware will finally recover by early 2015.

Since hitting 7.4% in August, the state’s unemployment rate is down to 6 % for February, again registering under the U.S. rate of 6.7%. Delaware’s unemployment rate is well below New Jersey, equal to Pennsylvania and above Maryland (5.7%), the center of Federal government consulting. In recent months Delaware’s labor force has finally started growing again and slightly over half of the gain in jobs at Delaware businesses has translated into increased employment for the state’s residents.

The primary Delaware growth industry recently has been professional and business services, with both jobs in computer system design and scientific research and development up 8% per annum. Unfortunately, all of these new jobs are located in New Castle County where the bulk of professionals working in Delaware tend to live out of state (e.g., Chester County, Pennsylvania), spending most of their wages in their place of residence. In 2012 New Castle County had a $2.7 billion net out-migration of wage earnings.

In 2013 Delaware personal income rose by a modest 2.9%, still a pace well above inflation (1%) and slightly exceeding the nation (2.7%). However, similar to New Castle County, the increase in earnings from jobs located in Delaware (3.4%) far outstripped the earnings of Delaware residents (2.0%). Delaware businesses are creating jobs once again, but a large portion of those jobs are being filled by out-of-state residents….who spend most of their earnings in the communities where they live.

As troubling, Delaware personal income remains highly dependent upon transfer payments…Medicare, Medicaid, Social Security, unemployment insurance, and food stamps. Between 2012 and 2013 the transfer component of Delaware’s personal income rose a whopping 4.9%. Meanwhile, transfer payments across the nation rose 3.7%. Between 2007 and 2012 median household and median family income in Delaware did not keep pace with inflation. This reflects a growing bifurcation in the income distribution based on formal education, where the earnings gap between those with more education and less education is getting greater.

Consequently over the last five years monthly participation in food stamps in Delaware has risen 68% and enrollment in Medicaid is up 53%.

Compared to other states Delaware has liberal Medicaid eligibility requirements. The annual average increase in the state’s Medicaid spending over the past five years is 8.3%, 5th fastest in the U.S. Exceeding $700 million, Medicaid expenditures are now the largest item in the state’s General Fund budget, and the spending of the Department of Health and Social Services exceeds that of the state’s Department of Education.

Something has to give. During 2013 employee contributions for social insurance in Delaware soared 32%. Sooner or later the Federal and state government spending on entitlements has to be repaid, or it will crowd out spending on education, public safety, and roads. Delaware businesses can expect to face a wave of proposed tax increases. Those increases that fall upon households will further erode discretionary spending and consumption. More than ever, Delaware businesses need to understand the evolving markets in the state.

For example, the increasing bifurcation of the income distribution is a challenge to businesses that want to appeal to all customers. Residents with more formal education and higher earnings are on a spending spree while those with less education are squeezed and looking for discounts. The population 55 years of age and older continues to expand rapidly and businesses need to adjust to the demands of this age cohort.

DECON First Expects positive but slower job growth for the remainder of 2014 with a return to pre-recession employment by the middle of 2015. The large gains from the stock market together with growing transfer payments will ensure the continuation of a two-tiered consumer base.

DECON First uses economics to strengthen Delaware business. This is accomplished by providing accurate, objective, and relevant analysis of the economy, coupled with best practice recommendations that deliver new customers. The detailed analysis for the Indicators above is found in the DECON First quarterly Delaware Economic Review (www.deconfirst.com).

Direct questions to info@deconfirst.com!

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