Prosperity Watch Issue 25

Prosperity Watch Issue 25, No. 1: Declining manufacturing employment major factor in state's high unemployment

State would have 108,000 more jobs today if manufacturing employment resembled national average

In the debate over job creation, it is critically important for policy makers to correctly diagnose the major drivers of North Carolina’s persistently high unemployment rate in order to develop the most appropriate policy solutions. Recent research from the Budget and Tax Center makes it clear that the state’s lagging job creation compared to neighboring states is due in large part to competitiveness challenges in very specific, declining industries, rather than due to problems with competitiveness of the overall economy.

Specifically, the state’s current problem with joblessness is due to greater long-term over-reliance on a set of declining, less competitive manufacturing industries in comparison to surrounding states and the national as a whole. In 2000, more than 16 percent of North Carolina’s employment was concentrated in durable and non-durable manufacturing, the most of any surrounding states.  And unfortunately, these industries—especially textiles, apparel, and furniture manufacturing—bore the brunt of job losses over the last decade.  In fact, North Carolina lost 42 percent of its durable and non-durable manufacturing jobs from 2000 to 2011, more than any other neighboring states.

If North Carolina’s share of total employment in durable and non-durable goods manufacturing had resembled that of the nation as a whole in 2000—but still lost the same share of jobs in those sectors as were actually lost by 2011—then the Tarheel State would have 108,000 more jobs today than currently exist, and the state’s unemployment rate would likely be similar to neighboring states. The following figure bears this out.

In conducting this analysis, each state’s manufacturing job losses are held constant, while allowing only North Carolina’s manufacturing employment in 2000 to change to resemble the manufacturing employment levels in other states. In effect, this analysis holds constant the unique factors influencing job losses in each state and just examines the impact of manufacturing employment concentration on North Carolina’s job creation outcomes.

Given this analysis, it’s clear that North Carolina’s unemployment problem is due to declining competitiveness in specific industries—not to lack of competitiveness in the overall business climate or tax policy.

Prosperity Watch Issue 25, No. 2: North Carolina's job growth leaving Western and Eastern regions behind

After experiencing significant job losses during the Great Recession and only sluggish employment growth in the years since, North Carolina’s labor market is finally starting to generate some positive news. Since the beginning of 2013, the state’s unemployment rate has begun to drop and in April fell below 9 percent for the first time since 2009.  Although much of this improvement is due more to unemployed workers dropping out of the workforce rather than moving into jobs, North Carolina has experienced meaningful employment growth over the past two years and begun to make significant progress in replacing the 326,000 jobs lost during the recession.

Unfortunately, the 215,000 jobs created in North Carolina since deepest trough of the labor market have not been evenly spread across the entire state. Over the past five years, the majority all employment growth has occurred in the Triangle, Charlotte, and Central Piedmont regions, based on employment data from the North Carolina Employment Security Commission. These two regions include populous metropolitan areas and represent a significant share of the state’s population and labor force. In fact, nearly 80 percent of the increase in the state’s total employment level since March 2008 occurred in these two regions.

At the same time, a disproportionate share of the state’s job losses over the same period has occurred in non-metro areas of the state—in particular, the rural counties in Western and Eastern North Carolina. Of the 20 counties with the largest decline in employment levels, 14 are located in these two regions. While the total labor force in these two regions represent less than four percent of the state’s total labor force, employment decline in these counties represent 18.2 percent of state’s total employment decline since 2008. Moreover, the average unemployment rate for these 14 counties (12 percent) is significantly higher than the 20 counties with the highest employment growth over the last five years, which have an average unemployment rate of 8.5 percent.

The challenging employment landscape in counties in the Western and Eastern regions of the state is largely a result of declining industries—particularly manufacturing. Many of these counties have significant minority populations and persistently high poverty. Reversing these job losses and ensuring long-term sustainable employment growth should be a critical priority for our state’s policy makers that will likely require significant investments in job training in targeted industries most likely to produce robust employment growth and pay quality wages.