Prosperity Watch Issue 24

Prosperity Watch Issue 24, No. 1: Creating Jobs in All the Wrong Places - State's low-wage service sector experiences most job growth since end of the recession

Forty-four months since the formal end of the Great Recession in June 2009, North Carolina’s labor market continues to struggle with sluggish job creation and persistently high unemployment. But the most troubling trend facing the state’s economy is the long-term loss of middle-wage jobs—mostly in the goods-producing sector—and their steady replacement with jobs in low-wage service industries

According to new unemployment data for February released by the N.C. Division of Employment Security last week, the state’s rate has remained stagnant over the last year, fluctuating slightly between 9.6 and 9.4 percent over the past 12 months. 

Unfortunately, the sluggish employment growth has also been accompanied by a troubling trend on wages.  In the years since the end of the recession, not only has the state produced insufficient new jobs to bring down the overall unemployment rate, but the industries experiencing the best growth in an otherwise stagnant labor market are those industries that have paid wages lower than the state average. 

As seen in the following graph based on the Quarterly Census of Employment and Wages, the goods-producing sector—consisting largely of manufacturing industries—pays an average weekly of $917, well above the state average weekly wage of $806, while in sharp contrast, the service sector pays an average wage of $784 per week.   Since the end of the recession, employment in goods-producing industries fell by 4 percent between the third quarter of 2009 (the first full quarter of the recovery) and the third quarter of 2012 (the most recent data available).  Over the same period, the lower wage service sector has seen its employment grow by 2 percent, and now accounts for 83 percent of the state’s total employment.

In effect, the state’s labor market recovery has been marked by the loss of jobs paying above the state average and the replacement of these jobs with those paying lower than average wages.

Prosperity Watch Issue 24, No. 2: Economic Recovery Continues to Bypass African Americans

More than three years into the economic recovery, it is clear that communities of color are being left behind. After bearing the brunt of the Great Recession’s job losses, African American workers are continuing to lag behind their non-minority counterparts in North Carolina and in the nation as a whole.

Within North Carolina, the unemployment rate for African Americans remained more than 8 percentage points above the state average at the end of 2012, according to the Bureau of Labor Statistics. And in the fourth quarter of 2012, the unemployment rate for African Americans was 17.3 percent—more than double the Hispanic/Latino and White averages of 7.4 percent and 6.7 percent, respectively (see chart below). As a result, North Carolina had the third highest African American unemployment rate in the nation and the highest rate in the South at the end of 2012.

At the same time, African Americans in North Carolina are slipping further behind their counterparts across the nation, with an unemployment rate more than 3 percentage points greater than other African Americans in the nation as a whole, yet more evidence that our state is experiencing a slower recovery compared to the rest of the nation.

While these racial disparities have persisted nationally for the last fifty years, the unemployment rate in North Carolina illustrates the need for state lawmakers to invest in collective public structures that build the foundation for an inclusive economy.

Prosperity Watch Issue 24, No. 3: North Carolina’s unusual recovery - state's economy grows while job creation stagnates

In another unusual feature of the current business cycle, North Carolina experienced net positive economic growth over the past five years, but that growth has failed to translate into significant job creation.  For most of the 20th century, economic growth tended to generate corresponding rates of job creation, but an examination of North Carolina's recent record of both Gross Domestic product growth and employment growth over the past five years shows a troubling divergence between these two formerly interconnected trends—the economy is growing, but jobs are not.

As seen in the following graph, North Carolina experienced a total 4.2 percent growth in GDP between 2006 (the last full year prior to the recession) and 2011 (the last year in which GDP data is available from the Bureau of Economic Analysis).  At the same time, the state’s employment remained essentially flat, with just 0.2% total growth over the same five-year period (according to the BEA employment data).  Given these trends, it is clear that the current business cycle is reshaping the connection between economic growth and job creation.

 

According to economists, this divergence is likely due to a number of different trends, including the ability of firms to increase productivity without hiring additional workers, usually through additional capital investment.  Nowhere is this more evident than in North Carolina’s manufacturing sector—the largest sector in the private economy in both GDP and employment.  In 2006, durable goods and non-durable goods manufacturing comprised a combined 21.6 percent of the state’s economic output (measured by GDP), and accounted for 11 percent of the state’ employment base. Over the next five years, manufacturing employment fell by almost 21 percent, while the sector’s economic output experienced negligible—but positive—0.5 percent growth in terms of GDP. In other words, while manufacturing grew in terms of overall economic output, the sector’s employment base cratered.

As policy makers consider strategies for addressing the state’s struggling employment growth, addressing the disconnect between GDP growth and job creation in specific industries like manufacturing should be a top priority.

Prosperity Watch Issue 24, No. 4: North Carolina's lagging unemployment rate due to greater job losses during the recession than the nation as a whole

Despite recent minor improvement in North Carolina’s unemployment rate, persistent joblessness is still an ongoing challenge facing the state’s policy makers—especially when compared to the steadily improving national jobs picture.  Much of the troubling divergence between the improving national unemployment rate and the more stagnant state unemployment rate is due to the fact that North Carolina suffered deeper job losses during the recession than did the nation as a whole.

In the short-term, the state’s jobs picture appears to be improving—the unemployment rate dropped from 9.4 to 9.2 percent from February to March, the first time in four years North Carolina’s jobless rate has dipped below 9.4 percent.  Over the longer term, however, labor market trends have been much less promising—and shown much less improvement than the national average.  At the same time as North Carolina’s unemployment rate remained mired above 9 percent, the national labor market has improved and the average unemployment rate has dropped from 8.2 to 7.6 percent since March 2012.

Additionally, the nation as a whole has done a better job of moving workers from joblessness to employment in the years since the recession ended—while North Carolina has seen the number of unemployed workers drop by 10% since January 2011, the nation as a whole saw its pool of jobless workers drop by 16 percent over the same period.

As indicated by the following chart, this difference between North Carolina’s unemployment trajectory and that of the nation since the recession is largely due to the difference in their respective job losses during the recession. Between the beginning of the Great Recession in December 2007 and the deepest trough of the labor market in May 2010, North Carolina experienced much steeper job losses than the nation as a whole.  While North Carolina lost almost 10 percent of its pre-recession employment by the middle of 2010, the nation never lost more than 7 percent—a clear difference that has shaped the ability of both the state and the nation to replace lost jobs in the years since.


 

As a result, North Carolina faces a much higher climb out of a much deeper hole to replace the jobs lost during the recession than does the rest of the nation.  This helps explain why North Carolina has failed both to return to pre-recession employment levels and to bring down the number of unemployed people as quickly as the nation.

Prosperity Watch Issue 24, No. 5: Hard work not enough to keep low-income families afloat

In recent policy debates, the crucial fact that work alone does not provide sufficient income to lift families out of poverty has often been overlooked. In fact, more than two out of three low-income families were working in 2010, a slight dip from years when three out of four low-income families in North Carolina were working.  Critically, while employment growth in the mid-2000s slightly increased the number of low-income families who were working, this job growth failed to deliver meaningful economic gains for low-income workers.


 
The recent decline in low-income work rates is likely attributed to the intersection of persistently high unemployment and the replacement of middle-wage manufacturing jobs with service sector jobs that often pay significantly lower wages in the years since the Great Recession.  This is borne out by data showing that the share of North Carolina’s working families with incomes below 200 percent of the federal poverty level, (which in 2011 was $44,106 for a family of four) has grown more than 4.5 percent since 2007. Our neighboring states of South Carolina, Georgia and Florida—among 7 others—fared worse: their share of working families who were low-income grow by more than 5 percent.
Additionally, rising wage inequality since 2009 has resulted in a significant drop in wages among the lowest fifth of earners, who saw their wages drop by 7 percent (from $10.18 to $9.47 an hour), while the top fifth of earners experienced the same 4.2 percent drop as median earners.

This rising wage inequality reinforces the challenges of low-wage work for North Carolina families.  From making ends meet to securing their own retirement and educational opportunities for their children to pursuing advancement opportunities, North Carolina families engaged low-wage work face economic insecurity despite having a job and a path to the middle-class fraught with hurdles and barriers.