Prosperity Watch Issue 26

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.

Prosperity Watch Issue 26, No. 2: House budget continues long-term disinvestment in key state priorities

On Sunday night, June 9, the House released its own version of the state budget for FY2013-15. Although the plan proposes increasing overall spending, certain key investments will also see reductions this year.  Additionally, the House plan envisions keeping spending at historic lows, well below pre-recession levels.

In the House’s $20.6 billion budget, overall spending will increase by 1.6 percent over the base budget—the amount of spending necessary to keep providing services at current levels.  Most of these increases are driven by a 9 percent increase in the Health and Human Services area of the budget (which includes Medicaid and other health programs) and a 3.5 percent increase in the Natural and Economic Resources area of the budget (the portion that deals with economic development and environmental regulation).

Aside from these increases, however, the House plan envisions deep reductions in Public Education (1 percent), Community Colleges (2.4 percent), and the UNC System (5.5 percent). Unfortunately, these spending cuts come on top of historic disinvestment in these areas—spending is already significantly lower than the spending levels in place prior to the Great Recession in FY 2007-2008. Specifically, the House proposes funding levels that are down 6 percent for Public Education over the past five years, down 1 percent for Community Colleges, and down almost 11 percent for the UNC System.  Taken together, overall spending across the entire state budget would drop by 9 percent from pre-recession levels under the House plan.

Prosperity Watch Issue 26, No. 3: Employment Growth Continues to Bypass Rural North Carolina

Nearly 4 years since the formal end of the Great Recession, rural North Carolina is experiencing a very different recovery than the state’s urban areas. Instead of replacing the jobs lost during the recession, rural parts of the state are continuing to experience job loss, while at the same time, the state’s metropolitan and micropolitan areas have experienced employment growth. 

As seen in the following chart, metropolitan areas within the state saw a 5.6 percent increase in employment levels since the end of the Great Recession, with the small cities in the state’s micropolitan areas not too far behind, experiencing a 4.9 percent increase. At the same time, rural areas saw their total employment drop by 13.5 percent, suggesting that workers left rural communities in droves and moved to the state’s cities to find employment.

A major factor behind this shift from rural to urban employment involves the long-term trend away from manufacturing employment and towards service employment. Historically, North Carolina’s rural counties have depended on the manufacturing sector to provide the bulk of its employment opportunities, so as rural manufacturing declined due to global economic restructuring, rural workers were faced with a transition to service-producing industries—especially Leisure & Hospitality and Retail—and overall shrinking job opportunities. 

The conclusion of the Great Recession did not create a positive turn-around for residents in rural North Carolina; instead, it marked an even greater depression for the rural economy. Without the creation of more manufacturing jobs, comprehensive economic restructuring in these rural counties, and skills training for a 21st century economy, residents of rural counties in North Carolina, along with other southeastern states, will likely continue to face the hardships of job loss and economic depression.

Prosperity Watch Issue 26, No. 4: Unemployed workers still outnumber available job openings by almost 3-to-1

Despite a superficial improvement in North Carolina’s unemployment rate over the past three months, the state’s jobs picture remains extremely troubling, especially for the 70,000 Tarheel workers likely to lose federal extended unemployment benefits on June 30th. There are just not enough job openings available in order to meaningfully bring down unemployment rate, and as a result, thousands of the state’s workers are simply giving up on the job search and dropping out of the labor force altogether.

Perhaps most critically, there are currently 4 million unemployed workers chasing just 1.4 million jobs across the entire Southern region (see the following figure).  This translates to almost three unemployed workers for every one available job opening, suggesting that even if every job vacancy was filled, there would still be two unemployed workers left without the opportunity to work.  Additionally, the situation in North Carolina is likely worse than the regional average, given that the Tarheel state is home to an outsized portion of the region’s overall unemployment (10.4 percent of the total number of unemployed people in the South) compared to its share of the region’s total employment (just 8.5 percent).  

 

Unemployed workers in North Carolina have nowhere to go in order to find work, and as a result, they are dropping out of the labor force in increasing numbers. In May, more than 1,400 workers dropped out of the labor force, while only 1,000 unemployed workers found jobs, suggesting that the biggest factor in the state’s dropping unemployment is simply unemployed workers dropping out of the workforce, rather than genuine job creation.  When combined with the 20,000 workers who dropped out of the labor force in April, the result of these changes is that the state’s labor force is now at the lowest level since August 2012, erasing almost nine months worth of gains.

Even more troubling, the total number of employed people in North Carolina is at the lowest levels since November 2012, suggesting that the state’s economy is continuing to struggle in generating long-term sustainable job creation. And as along job creation continues to struggle, the unemployed will continue to outnumber available job openings, leaving these workers with no place to go in order to earn a living.