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NC Budget and Tax Center

In good news on the government accountability front this week, Governor McCrory and Commerce Secretary Decker put the brakes on privatizing the state’s economic development efforts, postponing the creation of the new nonprofit development corporation until the start of the new fiscal year in July. Ostensibly, the move is intended to make sure the transition to this new public-private partnership goes as smoothly as possible, given the catastrophic mistakes and complete lack of accountability suffered by other states when trying this approach. And the legislature would like to weigh in as well, given that the authorizing bill for all this never passed last year.

So it’s worth taking advantage of this pause in the rush to privatization to ensure that the state’s economic development efforts remain both effective and accountable. Fortunately, North Carolina has a long tradition of accountability in business development, a point made in a well-timed study released this week by national economic development watchdog Good Jobs First, and this is a tradition the state should continue.

According to the report, the Tarheel State has the third best accountability system in the country in terms of monitoring and disclosing whether companies live up to their promises of job creation.

This is a tradition that the state needs to continue and extend to the activities of the new development corporation, including the private sector donors and the proposed closing fund.

 

NC Budget and Tax Center

Governor McCrory’s Economic Development Board released it’s long-awaited strategic plan for the state’s economic development efforts this afternoon. Here is the Budget and Tax Center statement in response:

We all want to create jobs and grow an economy that works for everyone in North Carolina, and the best way to make sure that happens is to focus on raising family incomes after a decade of decline. While the Governor’s plan includes a number of useful proposals, there is an important contradiction between the plan’s call for additional tax cuts and the resources necessary to achieve the goals related to workforce development, innovation/entrepreneurship, and rural prosperity. These goals will be impossible unless the state provides adequate investment in higher education, community colleges, and rural community development initiatives. Funding for these initiatives are already well below where they were before the recession started in 2008, so it’s unlikely the state will be able to make significant progress on achieving these goals given the steep revenue losses resulting from last year’s tax cuts and any future round of tax reductions.

 

NC Budget and Tax Center

It’s the myth that will not die.

In the ongoing debate over the impact of last year’s draconian cuts to unemployment benefits, we keep hearing the story that reducing benefits for the jobless has helped reduce the unemployment rate.

If only this were true.

While the unemployment rate has undoubtedly fallen, this is because unemployed workers have simply fallen out of the labor force, rather than moving into employment—a trend the unemployment rate simply doesn’t take into account. Just this point was made yesterday in a New York Times piece by Annie Lowrey profiling North Carolina’s economy, which noted that for every unemployed person who moved into employment, another two unemployed people gave up looking for work and dropped out of the labor force altogether.

In fact, the state’s labor force contracted more than 2.5 percent in 2013 at the same time that the state’s population grew by almost 1 percent.  And anytime the labor force shrinks while the population grows, the economy is moving in the wrong direction.

If the Times piece gets it right about the connection between unemployment benefit cuts and the shrinking labor force, it is a bit too trusting of Governor McCrory’s claims that his plan helped boost job creation in the state.

Perhaps Ms. Lowrey should have noted Ned Barnett’s important point from last week—by any measure, employment growth in 2013 was the weakest of any year since the end of the recession. North Carolina created just 37,700 jobs from January to November last year, almost half the 66,000 jobs created over the same period in 2012 and still short of the jobs created in 2011 and 2010. At the rate of employment growth achieved in 2013, it will take another 13 years for the state to create enough jobs to replace all those lost during the recession and keep up with population growth.

If Governor McCrory was correct that cutting unemployment benefits forced unemployed workers to find work, then we would expect to see unemployed workers moving into employment. But we don’t—we actually see the opposite.  There were actually 9,000 fewer people employed in November than in January—again, the worst performance since 2010. This means that unemployed people aren’t moving into jobs, they’re just dropping out of the labor force altogether.

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NC Budget and Tax Center

In remarks at Monday’s economic forecast forum, a number of speakers sought to take credit for enacting policies in 2013 that they believe have contributed to big drops in the unemployment rate since last January, an idea that has been repeated in recent business news reports. Unfortunately, as much as we all want to make progress reducing North Carolina’s persistent joblessness, we’re still waiting for a jobs recovery to actually happen.

The unfortunate reality is that the unemployment rate may have fallen due to mathematical quirk in how it’s calculated, but unemployment itself still remains high due to anemic job creation and a contracting labor force.

Perhaps the most problematic claim involves the mistaken notion that the General Assembly’s deep cuts to unemployment benefits that took effect in June somehow spurred an impressive reduction in unemployment in the following months. According to this view, the “employment effect” associated with cutting unemployment benefits forces workers to find jobs that they otherwise would not have accepted because the wages of those new jobs pay less than what their old jobs paid. And since the unemployment rate has gone down, proponents of these cuts have argued that the employment effect must have worked in just this way.

There is a serious problem with this idea—it assumes that unemployed workers who lost their benefits in June went out and found jobs in August through November, a claim that just doesn’t bear up under serious scrutiny.

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NC Budget and Tax Center

In recent months, we’ve been hearing a lot from legislative leaders about how much the state’s economy has “improved” over the past couple years. Unsurprisingly, it turns out that much of this improvement never happened.

As seen in the latest issue of Prosperity Watch, North Carolina still has higher unemployment and lower shares of employed people than the national average–a trend that has remained consistent since 2011 and has actually gotten worse in 2013.  See the latest Prosperity Watch for details.