Prosperity Watch Issue 5

Prosperity Watch Issue 5, No. 3: Rural North Carolina still more recovery-proof than urban parts of the state, with bigger jobs deficit, higher unemployment

Rural counties in North Carolina appear to be more recovery-proof than urban counties in terms of job creation, according to numbers released by the North Carolina Employment Security Commission this morning.

Out of North Carolina’s 85 rural counties, 53 had unemployment rates over 10 percent in September, while only 5 out of the state’s 15 urban counties had similarly high rates. The average unemployment rate for rural counties (10.7 percent) is a full percentage point higher than the average jobless rate of 9.7 percent for urban counties.

Over the past year, rural counties have seen their unemployment rates go up significantly more than their urban counterparts. Since September 2010, the rural unemployment rate jumped from 9.8 to 10.7 percent. Urban counties only saw a minimal increase, from 9.3 to 9.4 percent.

On top of high unemployment, rural North Carolina is experiencing a serious jobs deficit between the number of jobs filled in the months before the recession began in December 2007 and the number of jobs filled this September. Rural communities would need to expand their employment by 165,300 jobs simply to return to the employment levels seen before the recession in September 2007.

Meanwhile, urban labor markets have recovered somewhat better—urban counties have a jobs deficit of only 111,234.

It is clear from these numbers that the labor market across the state is still struggling to recover from the recent recession, and rural communities are unquestionably suffering the most. Rural North Carolina is seeing higher unemployment rates and need to create thousands more jobs than the state’s urban counties in order to catch up to pre-recession levels.


Prosperity Watch Issue 5, No. 2: Recovery Proof - North Carolina's Jobless Rate Continues to Climb 45 Months after Start of Recession

Defined as two consecutive quarters of negative growth in gross state product (GSP), recessions generally follow a well-established pattern: gross domestic product begins to shrink, firms lay off workers, the unemployment rate spikes and then begins to return to normal, as companies consolidate their operations and begin to rehire workers. An economic recovery then ensues, coupled with employment growth in the labor market. This is the pattern followed by each of the last four recessions, with the notable exception of the most recent downturn, which began in 2007.

As the chart indicates, while the state’s unemployment rate in previous economic downturns returned to near-pre- recession levels within 40 months (just over three years) of the recession’s starting point, North Carolina’s jobless rate for the most recent recession peaked at 12% two years after the onset of the downturn in December 2007 and has remained largely above 9% ever since, despite what experts considered the beginning of a national economic recovery and consistent GSP growth by the spring of 2010. Perhaps even more troubling, the jobless rate has actually begun climbing again, reaching 10.5% in September. The state has experienced a recovery in terms of economic growth, but at the same time, this growth has not translated into robust job creation and recovery in the labor market.

The state’s unemployment rate seems remarkably recovery-proof.

This trend is partly explained by the collapse of the housing bubble and resulting global financial crisis in 2008. Many economists believe that these so-called “balance sheet” recessions cause more severe and long-lasting periods of joblessness than “normal” recessions resulting from natural contractions in the business cycle. These post-financial crisis “balance sheet” recessions usually involve significant private debt, as individuals and financial institutions seek to pay down massive debts accrued during the bubble times. As a result, these individuals and firms have less money to spend on consumption and business investment, driving down demand for private sector goods and services and acting as a drag on economic growth.

The nature of the recession may explain our state’s anemic private sector job growth, but as several economists have noted, this recession has been accompanied by the increasing unemployment in the public sector, as well. In fact, private sector job growth has been largely offset by deep layoffs in state and local governments. Since September 2010, the private sector created between 26,000 and 28,000 jobs, employment growth that has been eroded by anywhere from 18,000 to 21,000 layoffs in the public sector, depending in the survey. Without these layoffs, the state’s unemployment rate would be significantly lower—only 10.1%. Unfortunately, increasing public sector unemployment during a period of weak private sector job growth is acting as a further drag on labor market recovery, as layoffs reduce consumer spending from private sector firms, which in turn depresses private sector sales, profits, and employment expansion opportunities.

Prosperity Watch Issue 5, No. 1: Income Inequality Grows, Middle Class Erodes

Cross-posted from the Progressive Pulse

Median household income nationwide fell in 2010 to levels not seen since 1996. And with this overall loss in income, there was a slight growth in income inequality and the continued erosion of the middle class.

The result is what analysts are calling the hourglass economy where the wealthy do well, those with low-incomes fare poorly, and the middle-class disappears. Others have described the most recent income trends as the Great Slide where more and more Americans fall out of the middle-class because of job loss, rising foreclosure, and dwindling savings for retirement.

So what does the change in income look like in North Carolina? From 2006—the last year before the Great Recession—to 2010, income inequality across households increased. The chart below shows that households in the top 20 percent by income saw incomes fall by 3.3 percent, while those in the bottom 20 percent saw incomes fall by 7.2 percent. Incomes are in 2010 inflation-adjusted dollars.

The benefits of economic growth should be shared broadly, not bypass all but a handful of families. Not only does widening income inequality raise important questions of fairness but it carries serious economic and social costs. Policymakers should work towards launching all families towards a path of upward mobility through efforts to create jobs that pay family-sustaining wages.