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Governor Pat McCrory and other state leaders continue to tout the Carolina Comeback, their name for the economic recovery in the state.

But the numbers tell a different story with workers earning less and many people in rural counties unable to find a job at all.

Economist Jared Bernstein, a Senior Fellow at the Center on Budget and Policy Priorities, was in Raleigh recently to talk about the state and national economy and how policymakers can help struggling families.

“You have to invest in the future. And investing in the future doesn’t just means creating a business climate that business like by cutting their taxes,” explained Bernstein. “Once you start whacking away at your tax base so that you can improve this idea of business climate in the near term, you really risk undermining the ability to drive future productivity in the long term.”

Bernstein joins us this weekend on NC Policy Watch’s News & Views with Chris Fitzsimon.

Click below to hear Bernstein explain why North Carolina’s politicians should spend less time talking about business climate rankings and spend more time focused on public investments.

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NC Budget and Tax Center

While the first storm of winter was heading our way yesterday, prominent economist Jared Bernstein discussed a low pressure system of a different type, how the persistent failure to achieve full employment is pushing wages down and contributing to growing wealth inequality.

Drawing on his work on the importance of full employment, Dr. Bernstein discussed how underemployment is responsible for much of the wage stagnation we have seen in recent decades. Particularly as attacks on organized labor have reduced the power of workers to directly pressure employers for better pay, and with a lack of political will to increase the minimum wage, workers’ only tend to see better pay when employers have to actively compete with each other to attract employees. When the economy isn’t creating enough jobs, and a large pool of unemployed people are desperate to find work, employers are not compelled to increase wages, which is precisely what we have seen in recent years.

Unemployment with Missing WorkersThe problem of underemployment depressing wages is not unique to North Carolina, but it is particularly pressing here in the Tar Heel state. Included in our End of the Year Chartbook for 2015, the two charts included here indicate that the dynamic Dr. Bernstein identified is alarmingly active here in NC. First, if we include all of the “Missing Workers” who were forced out of the labor pool during the recession due to lack of jobs, the real unemployment rate in North Carolina is likely still in the double figures. With so many people still looking for work, employers in many industries are not raising wages, which means that workers are receiving less of the value they create.NC Workers Receiving Less of the Value they Create

Dr. Bernstein argued that we don’t have to accept this state of affairs. There are policy responses that could get us closer to full employment and deliver wage growth, but a lack of political will at both the state and federal levels is preventing those remedies from being administered. So long as state leaders pursue tax cuts instead of raising the minimum wage, expanding educational and workforce investments, and wage supports like the Earned Income Tax Credit, Dr. Bernstein worries that we will continue to see inflated unemployment and wage stagnation and miss the critical opportunity to make the economy work for more people.

Commentary

Unemployment insurance[This post has been updated to include the link to Conway’s research paper at the bottom.]

This morning’s “must read” is Professor Patrick Conway’s op-ed in this morning’s edition of Raleigh’s News & Observer: “Not exactly a Carolina Comeback.” As Conway, who is Chairman of the Department of Economics At UNC Chapel Hill, explains, the the supposed economic revival for the state’s unemployed workers touted by Gov. McCrory, legislative leaders and their cheerleaders in the Pope/Koch empire simply hasn’t happened:

“Evidence from the Current Population Survey conducted by the U.S. Census Bureau indicates that the average working-age unemployed individual in North Carolina is actually less likely than an unemployed worker in the rest of the U.S. to be re-employed in the following month.

At the beginning of 2011, North Carolina unemployed workers were equally likely to find a job in the next month when compared with other states’ unemployed workers. From 2011 through mid-2015, unemployed workers in North Carolina were less likely to find a job.

It was February 2013 when state lawmakers approved unemployment insurance reform, which reduced the average payment and reduced the maximum number of weeks that the involuntarily unemployed could collect those payments. When Gov. Pat McCrory signed the legislation, he said this reform ‘will help provide an economic climate that allows job creators to start hiring again.’ About 170,000 North Carolina workers receiving insurance payments when the law took effect in July 2013 lost $780 million because of the reform.”

But that’s not all. Again, here’s Prof. Conway:

“There is one area in which North Carolina’s experience is significantly different from that of the rest of the country. Beginning in 2013, North Carolina’s unemployed workers were significantly more likely on average to leave the labor force rather than continue searching for jobs. By the middle of 2015, an individual unemployed worker in North Carolina was 30 percent more likely not to search for jobs in the next month than the average unemployed worker in the rest of the U.S. Those leaving the labor force are the “discouraged workers,” and the reform seems to have given them a strong push toward leaving.

To ensure that those results are not caused by North Carolina’s abundance of college students and individuals past retirement age, I redid the calculations using only individuals between the ages of 25 and 60. The specific percentages differ a bit, but the general findings are the same. The likelihood that an unemployed individual will find a job in the next month in North Carolina has been below that of the average for the rest of the U.S. throughout the insurance reform period.”

Conway’s bottom line:

“The reform has not had the effect on job creators that McCrory forecast. If there is to be a Carolina Comeback, it will begin by bringing our residents back into the labor force and providing our youth with the skills necessary to compete for and win available jobs. A policy that discourages workers should be reformulated or scrapped. Left in place, it creates an economy in which only some gain and many others are left behind.”

You can read the background paper on which Conway’s op-ed is based by clicking here.

NC Budget and Tax Center

Revenue is up in North Carolina—which is no surprise because the national and state economies are growing. But before jumping to the conclusion that tax cuts are the reason why, take a look at the numbers. Revenue collections for the first half of this 2016 fiscal year are higher than the same period last fiscal year, a report from the state’s controller’s office highlights. However, when compared to the same period for FY 2013, receipts from the personal income tax are down and receipts from the sales tax, which now applies to more goods and services, are up (see table below). This is the tax shift that state lawmakers put into motion in recent years.

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This tax shift – less reliance on revenue from the income tax and more from the sales tax – is an expressed desire of state leaders. Read More

NC Budget and Tax Center, Uncategorized

Last Thursday, members of the Economic Development and Global Engagement Oversight Committee saw evidence that many “business climate” rankings overstate how well North Carolina is actually doing.Abernathy Slide - Rankings and Econ Performance

Respected economic expert Ted Abernathy, formerly the Executive Director of the Southern Growth Policies board and now with Economic Leadership, an economic development and analysis consultancy, briefed the committee on a range of economic dynamics from growing wage gaps between urban and rural North Carolina to factors that influence our competitiveness on the global market.

Abernathy also examined how North Carolina’s economic performance compared with how we fared in several business interest group and media publications. This analysis shows that North Carolina’s economic performance has fallen short of its stature in many of the rankings. As can be seen in the graph, North Carolina is in the top 20% in performance (“Statistical Ranking”), but is a top 5 state in the “Best States” rankings. Our economy is doing better than many states, but not nearly as well as many state rankings would imply. Read More