NC Budget and Tax Center

Industry vulnerability, not tax policy, explains North Carolina’s high unemployment

A new report from the Budget and Tax Center explodes two persistent myths about North Carolina’s economy that are often used to justify cutting taxes. First, the report dispenses with the false claim that North Carolina’s overall economy is uncompetitive compared to our neighboring states. Turns out that our state is leading or in the middle of the pack in every major indicator of economic health—except for the unemployment rate.

Leaving aside Virginia—an anomaly in the South due to the rapid, federally-fueled growth of its DC suburbs—North Carolina has the lowest poverty rate in the region, median household income second only to Georgia’s, and annual per capita economic growth second only to Tennessee’s over the past decade. That last measure probably would have topped Tennessee’s if not for North Carolina’s rapid population growth—the Tarheel State saw an 18 percent jump  in population between 2000 and 2011 (the sixth highest in the nation), while Tennessee had  11.6 percent growth over the same period. Even North Carolina’s loss in household income over the past ten years—while undoubtedly troubling—is not out of line with the losses in other states. 

This means we face an unemployment challenge, as opposed to a more deep-seeded problem with the state’s overall competitiveness.

Second, the report delves into the reasons for this challenge and finds that it is due to long-term over-reliance on a set of declining, less competitive manufacturing industries in comparison to surrounding states, and not to uncompetitive tax policies.  Specifically, the report finds, the driver of our state’s higher unemployment is decline in those specific industries that proved the most vulnerable to offshoring, outsourcing, and global competitive pressures—examples include textiles, apparel, and furniture—and happened to employ a larger share of North Carolina’s workers prior to the 2011 and 2007 recessions than were employed in other states.

 

Specific findings include:

  • North Carolina’s higher unemployment rate is due to much greater reliance than neighboring states on declining durable and non-durable goods manufacturing industries prior to the recessions of 2001 and 2007. In 2000, more than 16 percent of North Carolina’s employment was concentrated in manufacturing, the most of any surrounding states.

 

  • North Carolina lost almost 42 percent of its manufacturing employment between 2000 and 2011, greater than the loss experienced by any other neighboring state.

 

  • If North Carolina’s share of total employment in durable and non-durable goods manufacturing had resembled that of the nation as a whole, 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.

 

In effect, the state’s challenges with unemployment stem from being overly concentrated in less competitive industries, rather than having less competitive tax policies. Certainly, North Carolina’s conistent top ranking among the best states in which to do business by corporate leaders makes it clear that tax policy isn’t holding back the state from attracting business investment.  As a result, investing in job training and infrastructure to attract and grow competitive industries of the future is a far better approach to reducing unemployment than the tax cuts currently discussed by the legislature.

3 Comments

  1. Doug

    April 30, 2013 at 1:55 pm

    I agree with your last paragraph. But why would a company move, or form in this state with the high tax structure we have? The reason we have to set up these good ole’ boy tax incentive schemes is because we are uncompetitive from a total tax base, high local property taxes, highest gas tax in SE region etc. Also, the NC DOR is one of the most aggressive on imputing income to the state whether you reside here or not…although that is becoming more common in other states as we have set an example. The truth is we have an environment that is trending to the Norteastern states’ model which has proven to be a model that does not succed.

  2. david esmay

    April 30, 2013 at 2:12 pm

    If all Doug’s assertions had any relevance, NC wouldn’t be ranked in the top ten business friendly states. Iowa is ranked 41 by Forbes, top income tax rate of 8.98% and has an unemployment rate of 5%. Coincidentally, 10 of the 11 poorest states and states that receive the most federal aid are RED southern states.

  3. Ken @ EEI

    May 2, 2013 at 3:38 pm

    A state’s unemployment rate is actually one of the worst indicators of its economic health because more and more people are working in untraditional ways such as freelance, part-time and even self employment. It’s time for the lame-stream media to stop paying so much attention to the unemployment rate and more attention to indicators such as a state’s tax revenue and median household income two judge its economic health.