Prosperity Watch Issue 31

Prosperity Watch Issue 31, No. 1: Economic growth fails to generate increased incomes for NC families

Economic growth is supposed to create a “rising tide that lifts all boats” to greater prosperity for most people. Unfortunately, the opposite has been true in North Carolina over the last business cycle—although the state has seen positive economic growth, family incomes have actually fallen, suggesting that growth just isn’t enough to generate broadly shared prosperity in the modern economy.

For most of the 20th century, growth in Gross State Product—the value of all the goods and services produced in the state—resulted in corresponding growth in family incomes. Businesses produced more goods more efficiently, made higher profits, and in turn, passed some of those profits along to the state’s workers in the form of higher wages or increased job creation. And as workers pocketed those higher wages, they supported additional economic growth by spending their paychecks at local businesses, completing a virtuous cycle that translated the fruits of growth into shared prosperity.

As a recent report from the Budget and Tax Center makes clear, however, the ongoing transformation from a manufacturing-oriented economy to a service-based economy has completely upended the historic relationship between economic growth and rising incomes. As middle-wage manufacturing jobs have been replaced by low-wage service jobs across the state, incomes have steadily fallen, despite seeing long-term growth in the value of the goods and services produced in the state.

This trend has been especially pronounced over the last business cycle, when comparing the state’s economy in 2012—three years after the end of the Great Recession—to where it was in 2004, three years after the end of the 2001 recession. As the following graph makes clear, the value of Gross State Product per person has increased by almost 3 percent from 2004 to 2012, when accounting for inflation, while at the same time, Median Household Income has fallen by a staggering 15 percent over the same time period. This means that the average family has lost 15 cents for every dollar of income earned since 2004 at a time when the overall size and value of the state’s economy has improved.

In the face of these trends, policy makers face a profound challenge. By itself, economic growth does not automatically increase family incomes, nor can it provide ladders to the middle class for workers trapped in low-wage occupations. As a result, the state must re-orient its economic development efforts towards raising family incomes and ensuring broadly-shared prosperity. These efforts must involve creating quality jobs in growing industries that pay good wages and provide benefits. Without a course correction on the recent income trends, North Carolina’s families will continue to be shut out of receiving the benefits of economic growth.

Prosperity Watch Issue 31, No. 2: Immigrants are a Growing Share of North Carolina's Population, Vital to Economic Success

North Carolina benefits greatly from the economic contributions of its immigrant populations who play a vital role as workers, entrepreneurs, consumers and taxpayers. Immigrants are not only present in communities throughout the Tar Heel state, but they represent a growing share of the state’s total population. And in the coming decades, the economic benefits of immigration will continue to loom large as North Carolina faces workforce and budget challenges resulting from a rapidly aging population.

In 2011, North Carolina ranked 14th highest among all states for absolute number of foreign-born residents. There were more than 708,000 foreign-born people in the state, representing 7.3 percent of the population and 9.8 percent of the workforce. Foreign-born includes all people who live in the United States but were born in another county, including documented and undocumented immigrants, refugees, and temporary residents such as temporary workers and students.

The latest data available indicate that the presence of foreign-born persons varies widely county to county, with the largest urban counties housing the greatest concentration of immigrants in the state (see the map below). Of all of North Carolina’s 100 counties, Durham County has the largest share of immigrants at 14 percent of its population, followed by Orange and Wake counties. At the opposite end of the spectrum, the smallest share of immigrants are located in the state’s Northeastern counties, comprising less than one percent of the total population in Bertie and Gates counties.  

Compared to three decades ago, immigrants are a growing share of the state’s total population. In 1990, just 1.7 percent of Tar Heels were foreign-born—a figure that more than doubled to reach 5.3 percent by 2000 and more than quadrupled to reach 7.3 percent by 2011. As North Carolina deals with a rapidly aging population and other demographic shifts affecting its ability to compete in the future, immigrants—who increase the labor force and customer base—are likely to play an increasingly important role in the state’s economy.

Learn more about key economic and demographic trends among immigrants living in North Carolina and its 100 counties with this new interactive map launched by the NC Justice Center.

Prosperity Watch Issue 31, No. 3: Community colleges see reduction in state dollars through formula change

During the course of the Great Recession and recovery, state policymakers fully funded community college enrollment growth according to a formula that looked at the past three years of enrollment. This was an important recognition that the open-door mandate of the community college system and the failure of the economy to rebound quickly was increasing demand for retraining and credentials. 

In this year’s budget, an important change to the way that community college funding is allocated was made by changing the period over which enrollment would be looked at for allocation purposes from three years to two.  The effect of these changes results in nearly 2 percent less in overall funding for the 58 community colleges in the system with the impact on colleges varying based on their experience of enrollment spikes during the downturn and subsequent recovery.

In the midst of the current sluggish recovery and an overall investment by the state in community colleges that falls 1.6 percent short of what is needed to maintain current service levels, this will reduce the allocations to those schools that experienced the greatest pressure from student enrollment.  That means that even as enrollment levels stabilize at a lower level, community colleges will struggle to serve students in communities that have been hardest hit.  They will also not have the resources to fully orient their programming and services to help many of the students who are in need of retraining and new career orientation.

The following map shows the distribution of funding change across the state as a result of these enrollment formula changes.

The map shows that most community colleges will see a reduction in their funding as a result of this change.  Those with the greatest reduction are in areas where industry was hardest hit and the economy has been slowest to recover. 

In order to fulfill its mission of funding the education and skills training for the jobs of the future for a range of students who are often adults returning for credentials, getting the formula for funding community colleges right is critical.  Making sure that formula funding changes allow community colleges to serve increased demand during downturns is fundamental to that mission but the change to the look back period alone won’t better position community colleges to fund skills training through the business cycle and the ebbs and flows of students through their open doors.

Prosperity Watch Issue 31, No. 4: Food Stamp expenditures already dropping, with decline expected to fall faster over next five years

While some in Congress are expressing concern over federal food assistance expenditures—and proposing deep cuts to the program as a “solution”—a straightforward assessment of federal spending on the Supplementary Nutrition Assistance Program (SNAP) shows these concerns to be entirely misplaced and the proposed solution of deep cuts to be counterproductive.   

Formerly known as food stamps, SNAP helps many families struggling with hunger to purchase a nutritious diet. As a result, it is one of the nation’s most powerful weapons available to alleviate hunger. It turns out, according to a new report released by the Center on Budget and Policy Priorities, that federal spending on SNAP is actually starting to decline as a share of the economy five years after the end of the Great Recession.  

In fact, much of the growth in SNAP spending from 2008 to 2011 is due to the Great Recession—the worst economic downturn since the Great Depression—and a historically sluggish recovery. During this period, SNAP spending more than doubled as a share of the economy. Since 2011, however, this trend has moved in the opposite direction—spending on SNAP has leveled off and is expected to drop significantly over the next five years (see chart below).

The Congressional Budget Office (CBO) expects the number of participants to fall by 2 to 5 percent each year over the next decade—from 47.7 million to 34.3 million by 2023—assuming the economy continues to improve. Once the economy has fully recovered from the Great Recession, spending on SNAP is only expected to increase if there is growth in low-income households (who would then qualify for benefits) or if food prices rise.

This trend is far from unusual or unexpected—the CBO and a number of other experts projected these spending reductions since we experienced similar long-term drops in SNAP spending in the aftermath of previous American recessions, according to the report.

This push for additional cuts is in-part grounded in claims that SNAP expenditures are growing out of control. However, as illustrated above, SNAP expenditures will not remain at their current high levels nor will they grow after the economy fully recovers.