A pathway to poverty: 3 reasons why Tennessee is a bad role model for North Carolina’s economic future

June 4, 2013 at 12:29 pmCategory:NC Budget and Tax Center

by

In the current debate over tax reform, legislative leaders frequently hold up Tennessee as a role model for improving North Carolina’s economic competitiveness and ensuring future prosperity.  But as a new Budget and Tax Center brief reveals, once we look below the surface, the Volunteer State has exactly the wrong kind of economy to emulate—Tennessee models a pathway to poverty, not a pathway to prosperity.

Here are 3 reasons why Tennessee is a bad role model for North Carolina’s economic future:

1. Tennessee’s economy is not performing as competitively as advertised.

 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.

2.       Tennessee’s economy is generating low-wage jobs that pay poverty-level wages.

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.

Read More…

Why April’s unemployment report is worse than it looks

May 18, 2013 at 9:00 amCategory:NC Budget and Tax Center

by

Yesterday’s announcement that North Carolina’s unemployment rate had dropped to 8.9 percent last month was met with considerable acclamation in a number of media reports today. Unfortunately, much of this positive commentary was misplaced—despite demonstrating some superficial improvement, the new jobs report is far worse than it first looks.

In fact, the dip in the state’s unemployment rate is due almost entirely to a contracting workforce, rather than genuine new job creation. Specifically, almost 20,000 workers dropped out of the labor force the pool of prime age workers who either have a job or want one—last month, including 15,000 jobless workers who were unable to find employment and gave up searching.

Given that the labor force contracted by 20,000 and the total number of employed workers also dropped by 4,000 at the same time, it appears that the 14,000 drop in the number of unemployed workers is largely the result of jobless workers becoming discouraged—giving up on looking for work and dropping out of the labor force altogether.

As a result of these changes, the labor force—is now at the lowest level since July 2012, erasing almost 9 months worth of gains. Even more troubling, the total number of employed people in North Carolina also dropped to the lowest levels since October 2012, suggesting that North Carolina’s economy is continuing to struggle in generating long-term sustainable job creation.

In other words, unemployed workers moved out of the labor force altogether, rather than moving into new jobs.

Read More…

Another key justification for tax cuts bites the dust: NC economy is already competitive with neighboring states

May 8, 2013 at 10:36 amCategory:NC Budget and Tax Center

by

Throughout the ongoing tax reform debate, we’ve been hearing the same tired claims that North Carolina’s economy is failing to compete with our neighboring states. And during yesterday’s preview of the Senate tax reform plan, we heard it again as justification for a billion dollar tax cut.

There’s just one problem—these claims are simply not true. 

As a report released last week found, it’s clear that North Carolina’s economy is performing competitively with surrounding states across every major indicator of economic health, with the exception of the unemployment rate. 

And North Carolina has higher unemployment than neighboring states today because the Tarheel State has historically relied to greater extent on a handful of manufacturing industries that have proved much more vulnerable to offshoring, outsourcing, and global cost pressures.  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.

In fact, 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.

As a result, 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. Faced with these very specific challenges, investing in job training and infrastructure to attract and grow the competitive industries of the future is a far better approach to reducing unemployment than the tax cuts currently discussed by the legislature.

Jared Bernstein on today’s tax reform debate

May 7, 2013 at 4:40 pmCategory:NC Budget and Tax Center

by

Jared Bernstein, former chief economic advisor for Vice President Biden, debated tax reform with Elizaebth Malm of the Tax Foundation today at an event co-hosted by the Budget and Tax Center, the Civitas Institute, and the Institute on Emerging Issues at NC State University.

In a blog post following the event, Bernstein reflected on some of the key themes that came out of the debate, especially the Great Tax Shift proposed by some in the General Assembly that would ask working and low income families to pay more in sales taxes in order to finance income tax cuts for the wealthiest North Carolinians.

Read Bernstein’s blog post here, and watch video of the event here.

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

April 30, 2013 at 11:24 amCategory:NC Budget and Tax Center

by

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.

  Read More…