An Agenda for Revitalizing Pennsylvania's Economic Dynamism

With Gov. Josh Shapiro committed to ensuring that Pennsylvania becomes “a national leader” in innovation and economic development, the time has come for the commonwealth to make that pledge a reality.

Yet Pennsylvania has been slow to convert its considerable assets into abundant, high-quality economic growth, including broad-based employment in high-paying, nationally competitive advanced industries. To do that, Pennsylvania needs catalytic steps from state government to unlock its innovation potential.

That’s where our recent report “Commonwealth of innovation: A policy agenda for revitalizing Pennsylvania’s economic dynamism” comes in. Funded by the Henry L. Hillman Foundation in Pittsburgh, the report reviews the state’s core innovation challenges and suggests state-level policy recommendations for energizing its innovation sector. Overall, the analysis sees lots of potential – and a need for decisive action.

Pennsylvania’s innovation trends are mixed but going sideways

On the one hand, the state’s $4.8 billion higher-education R&D enterprise ranked fourth-largest in the nation in 2020 and is contributing to the emergence of significant innovation clusters in areas like the life sciences, AI, robotics, advanced manufacturing, chemicals, plastics, and food.

On the other hand, the state is not producing enough innovation-driven advanced-industries jobs in those areas. From 2010 to 2019, Pennsylvania saw its advanced-industries employment grow by just 10.9%, trailing the national rate by eight percentage points. Overall, Pennsylvania ranked sixth out of nine peer states in advanced-industries job growth, lagging Indiana and Massachusetts by nine percentage points and Michigan by 23.

Underlying Pennsylvania’s innovation drift: four challenges holding the state back

What’s the problem here? We see four main issues.

First, state government has seemed to lack a clear commitment to innovation and has let its core innovation programs languish. Most starkly, Pennsylvania reduced its investments in innovation programs by nearly two-thirds during the Great Recession and has failed to rebuild in subsequent years. 

Figure 1. Core innovation funding in Pennsylvania, FY 2003 – FY 2023

Source: Brookings analysis of Pennsylvania Department of Community and Economic Development data

Second, the state lags on converting top-quality research into growth firms and broader-scale commercial activity in its major innovation hubs – Philadelphia and Pittsburgh. Too little work has gone into ecosystem-building or support for startup formation and scale-up.

Third, innovation is struggling outside of the state’s largest cities. Only about 1% of Pennsylvania’s university-based R&D activity takes place beyond the Philadelphia, Pittsburgh, and State College metro areas. And regions outside the three major innovation metro areas have seen their share of the state’s advanced-industry employment decline through the last decade.

Map 1. Change of county’s share of Pennsylvania’s advanced-industries jobs, 2010-2022

Note: This graph includes employment in actual counties only and excludes jobs whose specific location within Pennsylvania is unknown or undefined.

Source: Brookings analysis of Lightcast data

Finally, access to the innovation economy is unequal by race and gender. STEM education, from K-12 through higher education, remains significantly unequal by race and gender in Pennsylvania. This has implications for employment and entrepreneurship, as female, black, and Latino or Hispanic Pennsylvanians are underrepresented in advanced-industries employment and overall firm ownership.

In the face of these challenges, the commonwealth needs to renew its commitment to innovation as a fundamental driver of high-quality, broad-based prosperity.

Pennsylvania must reclaim its history of supportive policy innovation. To do so, Gov. Shapiro and the Assembly need to focus on four main areas of modernization. 

First, the governor and Assembly need to commit to innovation by articulating a strong vision and centering innovation in economic-development activities. Even more critically, they need to rebuild the commonwealth’s languishing innovation budget. For example, Pennsylvania spends just one-fifth of the amount per-capita that Ohio does on “tech transfer” activities. No wonder Pennsylvania is lagging.

Second, the state needs to accelerate commercialization and growth in the state’s major innovation metros. What matters in Philadelphia, Pittsburgh, and State College matters to all Pennsylvanians, but reduced state investment has undercut efforts to bolster the vital tech ecosystems that help companies grow, particularly near research universities. Accordingly, the Shapiro administration needs to work with the Assembly to design and support a sizable “Pennsylvania Innovation Hubs” challenge-grant program to foster regional innovation clusters. Substantial local matching funds should be deployed to scale up commercial activity in the state’s emerging big-city growth clusters – the state’s “crown jewels” for growth.

Third, the state government needs to foster innovation and entrepreneurship outside of major metro areas. Pennsylvania’s stark regional divides keep hundreds of thousands of Pennsylvanians in smaller towns and rural areas from accessing the state’s best-paying innovation jobs. In response, the Shapiro administration should design and fund an analogous “Innovation Communities Challenge” grant program to catalyze innovation and entrepreneurship in 20 regions outside Pennsylvania’s major metro areas. The administration should also leverage the state’s robust higher-education system to spread innovation by establishing an advanced-industries innovation-voucher program and continuing to strengthen the Invent Penn State LaunchBox Network.

Finally, the commonwealth needs to insist on inclusion in its innovation economy. Without a concentrated focus on building a more inclusive innovation economy, Pennsylvania risks perpetuating the same inequalities by race and gender that it has faced for generations. The state should work to enhance inclusion in its innovation economy across three areas. To start, it must grow a more inclusive entrepreneurial ecosystem in both innovation-intensive industries and Main Street entrepreneurship. Next, it needs to expand access to advanced-industry careers for workers who have been historically underrepresented in those industries. And finally, the state must make STEM education more equitable, from K-12 through higher education, to ensure a more inclusive innovation economy for future generations.

Pennsylvania has all the resources it needs to establish a new national paradigm for inclusive innovation growth. But state leaders must act now if they want to reclaim the commonwealth’s former position as an innovation leader and build a more competitive and inclusive innovation economy for the future.

Mark Muro is a senior fellow at Brookings Metro in Washington, D.C. Robert Maxim is a senior research associate at Brookings.