Commentary

Powerful new report: State tax cuts aren’t what produces job growth

The wonks at the Center on Budget and Policy Priorities are out with a new report that, once again, derides the central premise  of the “economic development” strategy being pursued by Governor Pat McCrory and the General Assembly.

Here’s the opening to “State Job Creation Strategies Often Off Base”:

To create jobs and build strong economies, states should focus on producing more home-grown entrepreneurs and on helping startups and young, fast-growing firms already located in the state to survive and to grow ? not on cutting taxes and trying to lure businesses from other states.  That’s the conclusion from a new analysis of data about which businesses create jobs and where they create them.

The data show that:

  • The vast majority of jobs are created by businesses that start up or are already present in a state — not by the relocation or branching into a state by out-of-state firms. Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year, depending on the state.  Jobs created by out-of-state businesses expanding into a state through the opening of new branches represent less than one-sixth of total job creation.  In other words, “home-grown” jobs contribute more than 80 percent of total job creation in every state.
  • During periods of healthy economic growth, startups and young, fast-growing companies are responsible for most new jobs.  During the Internet-driven boom of the late 1990s and early 2000s, for example, startup firms (those less than one year old) and high-growth firms — which are likely to be young — accounted for about 70 percent of all new jobs in the U.S. economy.  Firms older than one year actually lost jobs on average; any new jobs they created were more than offset by jobs they eliminated through downsizing or closure.  In short, startups and young, fast-growing firms are the fundamental drivers of job creation when the U.S. economy is performing well.

State economic development policies that ignore these fundamental realities about job creation are bound to fail.  A good example is the deep income tax cuts many states have enacted or are proposing.  Such tax cuts are largely irrelevant to owners of young, fast-growing firms because they generally have little taxable income.  And, tax cuts take money away from schools, universities, and other public investments essential to producing the talented workforce that entrepreneurs require.  Many policymakers also continue to focus their efforts heavily on tax breaks aimed at luring companies from other states — even though startups and young, fast-growing firms already in the state are much more important sources of job creation.”

If only our state policymakers would pay attention and abandon their archaic and failed , tax cuts uber alles approach to the economy, North Carolina might really be making some hay. Unfortunately, that clearly is not the case.

Click here to read the entire report.

NC Budget and Tax Center

Prominent economist connects the dots between underemployment and stagnant wages in NC

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.

NC Budget and Tax Center, Uncategorized

NCGA reminded that many “business climate” rankings paint an overly rosy picture

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

Commentary

Treading water: McCrory job announcements running up against a tide of plant closures

jobs adAnyone who follows state government has grown used to the regular press statements from politicians celebrating new private industry job creation announcements. For Governor McCrory, it’s almost a ritual. Scarcely a week goes by these days in which the Guv isn’t announcing (and taking credit) for the creation of jobs in one community or another.

A few (like this December announcement of the expansion of a home appliances outfit in New Bern that could create 460 jobs over five years) are relatively impressive, while many others (like this November announcement of the creation of 27 jobs over three years) are, well, not so exciting. At times, one is led to wonder whether the Guv will take to issuing a press statement every time a new Starbucks opens somewhere.

That said, one can hardly blame McCrory for trying. The man clearly sees himself as the state’s head cheerleader and that is no doubt an important part of his role.

It’s important, however, for North Carolinians not to get too swept up in (or impressed by) the apparent drumbeat of successes emanating from the administration. As recent news headlines remind us, there is a powerful current of job losses flowing in the opposite direction.

Consider the following: During the final quarter of 2015, the Governor issued nine press statements celebrating new job announcements that would create quite a few jobs over three and five-year periods. All told, it was one of the better three month periods in recent memory. Even so, when one pro rates the job claims over the specified time periods, the numbers are fairly modest, with roughly a total of 650 jobs to be created in 2016. And, of course, all of those numbers are just projections.

Now contrast that number with just two hard and fast recent announcements on the other side of the job ledger: the announced MillerCoors plant closing in Eden and the planned Freightliner layoff in Rowan County. Between those two events, that’s a loss of 1,456 jobs right way. What’s more, thanks to the disastrous unemployment insurance cuts imposed by Gov. McCrory and the General Assembly in recent years, the help for the newly jobless and their communities will be minimal-to-non-existent.

The take away: Neither the recent plant closures nor McCrory’s sunny announcements present a complete picture of the economy of course. Moreover, it’s certainly okay for the Guv to play cheerleader and hold lots of ribbon cutting events. Ultimately, however, as was explained in yesterday’s Weekly Briefing, no amount of positive spin or cheer leading can make up for a lousy overall situation.

In 2016, North Carolina desperately needs a comprehensive approach to growing an economy that works for everyone and leadership from elected officials on a host of fronts to make it happen. As the numbers above indicate, merely slashing taxes to help the well-off and repeatedly declaring victory is nowhere near enough.

NC Budget and Tax Center

Resolve to Act in 2016

We have our work cut out for us in 2016. Over the last few days we released a series of charts that capture the key economic stories of the past year. To see the full series of charts, visit the Justice Center’s Facebook page. Given the short and long-term economic challenges we face, public policy choices will determine whether we build an economy that works for everyone.

Your Resolve to Act in 2016 can bring prosperity to more North Carolina homes.  By staying up to date on economic trends, sharing information with your networks and communicating directly with your elected officials, you make sure that the choices are clear in the policy debates that this year will hold.

Resolve to act in 2016 because our economy isn’t creating enough jobs. If we counted all of the people who have left the labor market over the last several years because there are not enough jobs to go around, unemployment in North Carolina is likely still north of 10%. Even those who have been able to find work represent a smaller share of North Carolinians with a job than before the recession started. Unfortunately, economic reality has not yet produced a change of course in Raleigh. Many elected leaders continue to believe that tax cuts will solve our economic ills, in spite of the fact that state’s like California and Massachusetts that focus more on investing than cutting have seen stronger recoveries than North Carolina or our neighbors to the south. Read more