Why does North Carolina unemployment remain so high?

by Mike Walden, NCSU professor of Economics, published in WRAL Techwire, February 17, 2014.

here’s good news and bad news about the North Carolina job market. The good news is that more jobs have been created in recent years. Since the job market began to turn around in early 2010, both monthly surveys of the labor market in the state show job and employment gains totaling near 250,000.

But the bad news is that thousands of individuals don’t have jobs and want work. At the end of 2013, there were 320,000 people in the state who were officially classified as unemployed. This means they don’t have a job but want a job, and, importantly, they have recently been actively looking for work. However, there are another estimated 65,000 North Carolinians who want to work but have stopped looking and so aren’t in the official jobless numbers. Taken together, these numbers account for 130,000 more people unemployed than before the recession.

Economists who have looked at national data have generally concluded that the job recovery of the past four years has been sub-par. The same can be said for North Carolina’s jobs picture. Using employment at businesses as the measure, in the first four years after the recession of the early 1990s, job growth was 12 percent. In the first four years after the recession of the early 2000s, job growth in our state was 10 percent. This time, the job growth rate has been near 7 percent.

So why has our job recovery been relatively anemic? There are several potential reasons. One reason, in a way, is good: In North Carolina, our labor force has become more efficient. Using improved training and modern equipment and technology, production per worker increased 7 percent between 2007 and 2012 in our state, and it jumped 34 percent from 1997 to 2012. Both of these improvements in productivity exceeded the comparable national gains. The bottom line is we simply need fewer people today to produce what we make and sell.

Another issue is the construction market. Construction jobs in North Carolina plunged by one-third – the equivalent of 90,000 jobs – during the pullback in the housing market during the recession. Adding supplier and support jobs for construction doubles the total to 180,000.

Despite the improvement in home sales and home building, these jobs have not yet come back. Indeed, construction employment has still declined in our state over the past two years. While we wouldn’t necessarily expect all construction and related jobs to return to levels of the housing boom, a return to pre-boom levels is reasonable. This translates to about 45,000 construction jobs and another 45,000 related jobs – jobs that we currently don’t have.

Economists are now thinking that a major reason for slow job growth is a skills mismatch. That is, many workers are unemployed because they don’t have the skills and training employers want. There is some thinking that with the development of information technology and digital applications, the skills mismatch may have expanded in recent years.

A recent study estimated that up to a third of the increase in unemployment during the recession could have been due to this skills mismatch. For North Carolina, this would translate to about 100,000 individuals not being employed because they aren’t trained in needed skills areas. Also, the study found that the skills mismatch is not limited to high-school dropouts and high-school graduates, but is also a factor for college graduates.

Every state economy is impacted by national trends and national policies. Two large and far-reaching federal programs were passed in the last four years that some say could be having an adverse effect on job creation.

The first is the Dodd-Frank Financial Regulation Act, legislation implemented in reaction to the national financial crash in 2008. It imposes new rules, regulations and restrictions on financial services firms with a goal of preventing the kind of “speculation bubble” that occurred prior to the crash. While well-intentioned, there is some evidence that the law may be inhibiting lending, particularly to small businesses that are big job creators. In fact, small business loans have actually fallen during the recent economic recovery.

The second new law possibly having an impact on jobs is the Affordable Care Act. This is also a massive program that imposes a system of subsidies and taxes to expand the use of health insurance. The non-partisan Congressional Budget Office just issued a study suggesting the incentives resulting from the ACA may contribute to slower job growth.

So where does this leave us in North Carolina? First, I’m optimistic about the construction market. As long as the residential and commercial building markets continue to improve, I think we will eventually see construction and related jobs come back. However, the skills mismatch will take a concerted effort by educators, businesses and workers to address and overcome. Related to this will be the continuing development of new technology and machinery in the workplace, which some think is resulting in fewer, not more, jobs.

So I guess it’s easy for a person to be either an optimist or pessimist about jobs. You decide which you are!

Editor's note: Dr. Mike Walden is a William Neal Reynolds Distinguished Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of North Carolina State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy.