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NC Budget and Tax Center

At the heart of the American Dream is the idea that hard work is supposed to pay off—that anyone who works a full time job should be able to make ends and achieve upward mobility over the course of their lives. As discussed in the most recent issue of Prosperity Watch, however, seismic shifts in the global economy away from manufacturing and towards services have pushed this dream further and further away from too many of North Carolina’s workers. See the latest Prosperity Watch for details.

NC Budget and Tax Center

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.

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NC Budget and Tax Center

This week’s issue of Prosperity Watch grapples with an under-reported and historically unprecedented trend in North Carolina’s economy–while the state has experienced a total of more than 4 percent total growth in Gross Domestic Product from 2006 through 2011, job creation over this period has been virtually nonexistant. This trend in manufacturing is even more pronounced.

So what’s causing this troubling divergence between economic output and job creation? See the latest Prosperity Watch for details.

NC Budget and Tax Center

Throughout much of the Twentieth Century, North Carolina’s employment base rested largely on the state’s legacy manufacturing industries of textile, tobacco, and furniture.  But given the vulnerability of these industries to offshoring, plant closures, and mass layoffs, did over-reliance on these industries prior to the Great Recession actually leave North Carolina’s metro areas susceptible to high unemployment after the recession?

See last week’s ProsperityWatch (here or below the fold) for a discussion of the role played by pre-recession manufacturing specialization in explaining the different experiences of the state’s metro areas during the post-recession recovery.

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