According to a new report, thousands of employees continue to work in the suburbs rather than commute into the city two years into the Pandemic.
The decline in the total workforce overall and the permanent trend toward remote work are contributing to Philadelphia’s slow economic rebound. The full report on Philadelphia’s Fiscal Future, published in partnership with the William Penn Foundation, is available on the website.
Larry Eichel, one of the report’s authors, said that the report raises concerns that Philadelphia could experience an inequitable recovery that could hurt some people of color.
Lower- wage jobs in hotels, restaurants, and other leisure sectors disappeared, hurting already disadvantaged Philadelphians who held these service positions.
Many highly educated white-collar workers are benefiting from the increased flexibility of remote work, but some less-educated workers are not, according to the report.
Philadelphia’s economy is smaller than it was before the recession. He said that the leisure and hospitality sector was hit the hardest by the economy’s contraction.
Philadelphia’s once-vibrant downtown was decimated as tourism ceased and people stayed home.
Philadelphia had a total of 713,000 jobs at the end of the first quarter of this year. The city had 757,000 jobs in the fourth quarter of the year.
It is better than New York City, which lost 7.7% of jobs, and it is worse than Washington, which lost 5.7% of jobs.
When companies sent workers home at the start of the Pandemic in March 2020, no one expected that remote work would still be the norm two years later. According to the report, by the end of May of this year, 42% of pre-pandemic levels had been achieved in the Philly metropolitan area.
In the summer of 2021, when employees first began to return to Philadelphia offices, the occupancy was 25%, but it is not a full recovery, according to the office security provider that tracks employee badges in over 130 buildings around the country.
In February, a Center City District survey of 114 downtown companies and organizations found only 15% have staff working in-person five days a week, 25% have staff working fully remotely, and the rest work in the office part time.
That has dire implications for the city’s finances.
Over 13% of Philadelphia’s general fund revenues came from wage taxes paid by residents who commute into the city. If their employers want them to work from home, they are exempt from tax.
Wage tax collections were down in Philadelphia in the year 2020.
Finance and information, professional services, and education are all white-collar sectors that pay high wages and have a high proportion of foreign workers.
Wage tax revenues in health care and social services didn’t change. Revenues in finance and information fell 25%.
Inflation and the move to remote work is a national phenomena. That is not up to local officials.
Philadelphia is not the only city with a slow recovery. New York, Washington, and Baltimore have not created as many jobs as the rest of the country has. Midwest cities haven’t recovered all their jobs since the Pandemic.
Philadelphia’s double-taxation of businesses, a wage tax and a business income tax, has been addressed by the mayor in an attempt to attract and retain business owners.
Kevin Lessard, a spokesman for the mayor, said in an email on Wednesday that the reforms to the business taxes have helped to grow small businesses and jobs, reduce barriers and make Philadelphia a better place to do business.
The value of city wage tax cuts has more than doubled since 2016 and rates are at their lowest level since the 1970s, according to Lessard.
The city lowered the business income and receipts tax. One of the most burdensome taxes in the city is the Business Income and Receipts Tax, which imposes taxes on both profits and sales. The city taxes every dollar even before expenses, so business owners have to pay even if they suffer losses.
130,000 businesses filed a BIRT return in the previous year. A business with sales of less than $100,000 annually does not pay BIRT. The Department of Revenue says that 75% of Philadelphia businesses do not have a BIRT liability.
The cuts to the BIRT were not adopted by the City Council.
The mayor is trying to get state permission to use market-based source for service businesses. Service businesses in Philadelphia will only be required to pay BIRT tax on sales to customers within the city limits.
Lessard said that the change in policy was meant to promote fairness by leveling the playing field for Philadelphia-based service providers with companies outside of Philadelphia. Pennsylvania corporate income tax rules will be consistent with Philadelphia business taxes.
