Prosperity Watch Issue 26, No. 1: Tennessee’s economy represents a pathway to poverty, not a good role model for North Carolina

In the current debate over tax reform, Tennessee is often held up as a role model for improving North Carolina’s economic competitiveness and ensuring future prosperity.  But a look beneath the surface reveals that the Volunteer State has the wrong kind of economy to emulate—Tennessee models a pathway to poverty, not a pathway to prosperity.

Despite a couple years of post-recession job growth that surpassed North Carolina’s, Tennessee’s economy has not performed as competitively as advertised over the long-term.  The Volunteer State had by far the slowest employment growth rate (4.4 percent) of any neighboring state from 2001 to 2011 (the most recent complete for which data is available), including North Carolina (which saw 8.3 percent employment growth).  In the years of recession and sluggish recovery since 2006, North Carolina has actually seen 0.2 percent nonfarm employment growth, while nonfarm employment in the Volunteer State contracted by 2 percent. Only over the last two years has Tennessee begun to (slightly) outpace North Carolina in employment growth (2 percent to the Tarheel State’s 1.8 percent), but this does not represent a significant economic or competitive advantage.

What job growth Tennessee has experienced has mostly occurred in low-skill industries that are paying workers too little to keep families out of poverty. Over the past decade, private employment growth in industries paying below the state’s $30,202 median wage grew an average of 3 percent, while dropping by almost 5 percent in industries paying above this threshold. Even more troubling, this trend appears to be accelerating. Since 2006, Tennessee’s employment in higher-wage sectors has dropped by 7 percent.

These across the board lower wages go a long way toward explaining why Tennessee’s median household income ($41,700 in 2011) is $2,000 less than North Carolina’s ($43,916), and its 18.3 percent poverty rate is worse than North Carolina’s (17.9 percent).

Given Tennessee’s slow long-term employment growth and ultra-low wages, the Volunteer State represents a pathway to poverty and is a bad role model for North Carolina to emulate.

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