NC 'Comeback': economic miracle or jobs mirage?

Laura Hawks wasn’t overly concerned when the company where she worked as an office manager shut down in September 2011. The Garner resident was confident in her abilities and her track record and had never had trouble finding a job.

She quickly learned, however, that the job market was very different this time around.

After two months of searching for a job Hawks concluded that, with only a high school degree, she needed to upgrade her skills. So she enrolled as a full-time student at Wake Technical Community College and has been working toward an associate’s degree ever since.

“I’m living the way I lived when I was a single mother and struggling,” said Hawks, now 56. “I didn’t realize that, in my 50s, I would be living like that again.”

People such as Hawks who were pushed into becoming full-time students by a challenging job market aren’t categorized as unemployed by government statisticians. That puts them and other “discouraged workers” at the center of a politically charged debate about whether North Carolina’s unemployment rate, which has declined significantly in recent months, provides a clear picture of the state’s job market and the broader economy.

Gov. Pat McCrory and other Republican lawmakers hail the declining unemployment rate as a major turning point for the state’s economy. But critics say that other data – such as a deceleration in the number of jobs being created and decline of the size of the state’s labor force – paint a picture of frustrated job seekers abandoning their searches.

The drop in the jobless rate has coincided with the state’s decision to make major cuts in unemployment benefits, which has only intensified the debate and raised questions about whether the jobless are taking low-paying jobs out of desperation.

A governor’s boast

No one disputes that the drop in the state’s jobless rate over the past year has been dramatic. The unemployment rate is 7.4 percent, its lowest point since November 2008. The rate has fallen 2 percentage points over the past 12 months, more than in any other state.

Earlier this month, McCrory boasted in a speech to business executives in Durham that the decline in the state’s unemployment rate since he took office in January 2013 is evidence of what he labeled the “Great Carolina Comeback.” He praised lower corporate and personal income taxes and other measures pushed through the Republican-dominated legislature for improving the economy.

McCrory said that when he took office, 41 counties statewide had unemployment rates that exceeded 10 percent. Today that number stands at a dozen.

“More people are working,” he said.

But advocates for the poor argue that quirks in the way the unemployment rate is calculated distort the state’s job market and paint an overly optimistic picture of the economy – not to mention glossing over the financial hardships faced by the jobless.

The state created 37,700 jobs from January through November, which “is actually the poorest record of job creation we have had since the end of the recession,” said Allan Freyer, policy analyst for the Budget and Tax Center at the N.C. Justice Center, an advocacy group for the poor.

By contrast, he said, the state created 65,600 jobs in the first 11 months of 2012.

Even the question of whether more North Carolinians are working is debatable.

That’s because the monthly unemployment and job numbers rely on two different surveys – of households and employers.

Based on the household survey, the number of people employed in North Carolina has fallen by 8,587 since January 2013. But the employer survey tells us that 36,700 more people were employed in November compared to January 2013, “a relatively modest gain,” said Michael Walden, an economist at N.C. State University.

Walden said most economists tend to put more stock in the employer survey simply because the sample size is larger. Both surveys are subject to future revisions that can be significant.

“We really won’t know exactly what the final numbers are for at least another month,” he said.

Workforce shrinks

Those who argue that the decline in the state’s unemployment rate is misleading point out that the size of the state’s labor force – employed plus unemployed workers who are seeking work – has been contracting. Between January and November, the state’s labor force declined by more than 115,000 workers, or 2.5 percent.

Critics say that contraction is especially worrisome in a state where the population has been expanding; North Carolina added roughly 100,000 people for the 12 months that ended July 1, according to U.S. Census Bureau estimates. They view it as a sign that jobless workers frustrated by months of looking for work without success have given up and therefore aren’t categorized as unemployed in government statistics. That includes seniors who took early retirement after losing their jobs and those who return to school.

“Workers are discouraged for the simple reason that there are far more unemployed workers than there are available job openings,” said Freyer of the budget and tax center. “There just aren’t enough jobs out there.”

Economists attribute about half of the decline in the labor force to discouraged workers dropping out of the job market, said Walden, the N.C. State economist. The other half can be traced to baby boomers retiring and younger people staying in school longer.

So “half the drop is worrisome,” said Walden. He noted that the erosion of the labor force isn’t a North Carolina phenomenon – it’s happening nationwide.

Andrew Brod, senior research fellow at UNC-Greensboro’s Center for Business and Economic Research, views talk of a North Carolina comeback as premature.

Brod noted that whenever the Obama administration has talked up improving national unemployment numbers, “conservatives and Republicans will point out, ‘Yeah, but what about discouraged workers? What about the real unemployment rate?’ ”

“Those are valid comments,” he said. “But they apply here, too.”

Brian Balfour, policy director of the Civitas Institute, a Raleigh-based organization that supports most of the state Republicans’ legislative agenda, contends the focus on the declining labor force “misses the mark” by ignoring recent trends.

Two such trends: Most of the decline in the state’s unemployment rate last year occurred in the second half of the year, Balfour said, and a recent analysis by Wells Fargo senior economist Mark Vitner showed that the erosion of the labor force actually slowed in recent months.

“So to try and say this sharp inflection, this sharp drop in the unemployment rate, is attributed to more people dropping out of the labor force is not true,” Balfour said.

“The trend is moving in the direction we have been planning on – creating jobs, putting North Carolinians back to work,” said Sen Bob Rucho, a Mecklenburg County Republican, who cosponsored the sweeping tax bill passed by the legislature last year.

Rucho acknowledged that more progress is needed, and he’s confident that it will come.

“With the tax plan going into effect in January of this year,” he said, “there will be an additional boost to the economy because of a lot more disposable income going into the marketplace, creating business activity and jobs.”

Vitner, the economist, sees the declining labor force as “a real problem” that has had an impact in the drop in unemployment rate. But he believes it’s being overstated by some for political reasons.

“There is a decline in the labor force that is problematic for the economy, but it has been long-running,” Vitner said. “It’s not a recent development” that would explain the recent plunge in the state’s unemployment rate.

Accepting any job?

The more decisive factor, he contends, is the end of unemployment benefits for many North Carolina workers.

The new benefits system that went into effect in July reduced maximum unemployment checks by one-third and triggered an end to extended federally funded unemployment benefits in the state. That affected about 70,000 unemployed workers who had already exhausted their state-funded benefits.

“Many of them have taken whatever jobs they can find, including part-time jobs, to keep money coming in,” Vitner said. “They still count as being employed.”

Brod, of UNC-Greensboro, is skeptical of Vitner’s analysis.

“I would like to see a few more months of data,” he said.

Although research has shown that cutting unemployment benefits will prod people to boost their job-search efforts, he said, the labor market in North Carolina remains challenging.

“It’s one thing to look harder for work, it’s another thing to find a job,” Brod said.

But even if Vitner is right about people moving from unemployed to under-employed, it’s not great news for the state’s economy.

“Do we want people who used to make $50,000 a year taking a job flipping burgers at $20,000 a year? Probably not,” said Freyer. “That isn’t good for the long-term economic health of the state because you are creating consumers with very low purchasing power. And that’s not good for businesses.”

But Rucho, the state senator, argued it’s easier to find a job if you have one. So by jumping back into the work world, formerly unemployed workers are positioning themselves to find better-paying positions down the road “as the number of good jobs continues to grow and our economy continues to grow.”

‘Nobody asked me’

The ongoing debate over jobs is one that only economists and policy wonks could love, but the underlying issue has widespread implications. Voters often cast their ballots based on their perception of the economy, so whether they view the North Carolina economy as half-full or half-empty could have a significant impact on the next cycle of state elections.

“They keep saying – whoever ‘they’ are – that the unemployment numbers are improving,” complained Mary Lynn English, 44. “Nobody asked me.”

English, a divorced mother of two who lives in Asheville, has a bachelor’s degree in marketing and went back to school to earn a master’s degree in management and leadership – she calls its “the MBA without the math” – in May 2012. But she’s been unable to find a job since she graduated.

So far she’s applied for more than 140 marketing jobs and has landed just two interviews. That doesn’t take into account the retailing jobs she sought over the holidays or the jobs she sought even though she was clearly over-qualified.

“I’ve applied at McDonald’s,” she said.