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Reversing Pennsylvania’s Outmigration
Tax, housing, and labor reforms to grow the Commonwealth
| This Policy Spotlight distills the core findings and recommendations from the Policy Brief on this topic. For the complete analysis and data, please visit the Interstate Migration Series landing page. |
Americans made nearly 34 million interstate moves between 2018 and 2023, redistributing population, income, and economic activity among the states. Pennsylvania ranked 33rd in net interstate migration, losing 69,000 residents and nearly $10 billion in income.1Research suggests taxes, economic freedom, and housing supply are key factors behind the state’s migration outcomes. Pennsylvania faces competitive pressure on those fronts: Its overall tax competitiveness ranks 36th nationally, and its per-capita housing permitting rate runs at roughly one-third the rate of neighboring Delaware.
Tax Policy Reforms
The competitive landscape
Pennsylvania ranks 36th out of 50 states on the Tax Foundation’s State Tax Competitiveness Index, with weak scores on individual income, corporate, and unemployment insurance taxes. Local income taxes often push the combined income tax burden above 6%, while high corporate taxes and a complex local tax structure make the state less competitive than neighboring West Virginia.
| West Virginia | Reduced top income tax rate from 5.12% to 4.58% in recent years. |
| Pennsylvania | Flat income tax rate of 3.07%; local income taxes add up to 3% in many jurisdictions. Corporate tax rate cut from 9.99% to 7.49%, phasing down to 4.99% but still among the highest in the region. Ranks 36th on State Tax Competitiveness Index. |
Recommended reforms
Maintain the corporate income tax reduction of 0.5 percentage points per year, to reach 4.99%.
Cap combined state and local income tax rates and streamline local tax administration.
Reduce unemployment insurance tax burdens to bring costs in line with regional peers and lower a significant nonwage cost of employment that discourages hiring.
Housing Policy Reforms
The supply gap
Pennsylvania issues fewer than 2 housing permits per 1,000 residents annually—one-third the rate of neighboring Delaware (approximately 5.6 per 1,000). Tight supply raises housing costs, reduces affordability for incoming residents and workers, and diminishes Pennsylvania’s attractiveness relative to peer states. The barriers are not primarily financial, but regulatory. Slow permitting processes impose developer costs that further raise final housing prices.
Recommended reforms
- Streamline discretionary zoning approvals through standards-based review.
- Develop model zoning and land use ordinance standards that municipalities can adopt directly.
- Establish a housing case management system that improves coordination between agencies and reduces the cost and duration of the approval process.
- Allow licensed professionals to self-certify that they comply with all applicable zoning, subdivision, and land development requirements.
- Limit standing to appeal development decisions to parties with a direct, demonstrable interest.
Labor Market Freedom Reforms
The licensing burden
Pennsylvania has a heavily regulated labor market. Unlike neighboring West Virginia and many of the fastest-growing states in the South and Mountain West, Pennsylvania does not have a right-to-work law and continues to maintain labor market institutions that increase hiring and investment costs. States with greater labor market flexibility generally see stronger job growth, more business formation, and greater in-migration.
The portable benefits gap
More than a million Pennsylvanians work independently, yet many lack access to benefits because companies risk legal liability when providing benefits to nonemployees. Importantly, survey evidence shows that 80.3% of self-employed workers inn the United States want to remain independent while 80.1% want access to portable benefits. Portable benefits legislation in the state would allow workers to access benefits without compromising worker flexibility or exposing companies to legal risk.
Recommended reforms
- Enact a right-to-work law to protect worker choice, prohibiting mandatory union membership or dues.
- Expand universal recognition of out-of-state licenses to eliminate unnecessary barriers to recognizing out-of-state licenses to attract talent and support workforce mobility.
- Enact portable benefits legislation that allows workers to create portable benefits accounts while enabling firms to contribute without triggering worker reclassification rules. This reform would modernize workforce policies, empowering businesses to innovate and enabling workers to thrive.
Notes
[1]See Jack Salmon, “Interstate Migration Trends in the United States, 2018–2023: Where Are Americans Moving, and Why?” (Mercatus Policy Brief, Mercatus Center at George Mason University, July 2026).
