Prosperity Watch Issue 25, No. 1: Declining manufacturing employment major factor in state's high unemployment

State would have 108,000 more jobs today if manufacturing employment resembled national average

In the debate over job creation, it is critically important for policy makers to correctly diagnose the major drivers of North Carolina’s persistently high unemployment rate in order to develop the most appropriate policy solutions. Recent research from the Budget and Tax Center makes it clear that the state’s lagging job creation compared to neighboring states is due in large part to competitiveness challenges in very specific, declining industries, rather than due to problems with competitiveness of the overall economy.

Specifically, the state’s current problem with joblessness is due to greater long-term over-reliance on a set of declining, less competitive manufacturing industries in comparison to surrounding states and the national as a whole. In 2000, more than 16 percent of North Carolina’s employment was concentrated in durable and non-durable manufacturing, the most of any surrounding states.  And unfortunately, these industries—especially textiles, apparel, and furniture manufacturing—bore the brunt of job losses over the last decade.  In fact, North Carolina lost 42 percent of its durable and non-durable manufacturing jobs from 2000 to 2011, more than any other neighboring states.

If North Carolina’s share of total employment in durable and non-durable goods manufacturing had resembled that of the nation as a whole in 2000—but still lost the same share of jobs in those sectors as were actually lost by 2011—then the Tarheel State would have 108,000 more jobs today than currently exist, and the state’s unemployment rate would likely be similar to neighboring states. The following figure bears this out.

In conducting this analysis, each state’s manufacturing job losses are held constant, while allowing only North Carolina’s manufacturing employment in 2000 to change to resemble the manufacturing employment levels in other states. In effect, this analysis holds constant the unique factors influencing job losses in each state and just examines the impact of manufacturing employment concentration on North Carolina’s job creation outcomes.

Given this analysis, it’s clear that North Carolina’s unemployment problem is due to declining competitiveness in specific industries—not to lack of competitiveness in the overall business climate or tax policy.

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