A Sign of Weakness in North Carolina’s Economy

Sept. 26, 2016

Some of the recent decline in North Carolina’s unemployment rate is actually a sign of weakness in the job market. That may sound counterintuitive, but a deeper look at the employment figures shows that recovery has stalled somewhat in North Carolina, stranding thousands of workers on the economic margins.

The headline unemployment rate only includes people who are actively looking for work, which is useful information, but does not paint a clear picture of the overall labor market. During the recession, thousands of North Carolinians stopped looking for work because jobs were so scarce in their communities, which removed these workers from how we calculate the unemployment rate.

We call this group of North Carolinians “missing workers” because they would have been part of the job market under normal economic circumstances but are still absent in today’s economy. As shown here, if we included missing workers in the ranks of the unemployed, North Carolina’s unemployment rate would be around 10 percent, more than double the official rate.

Many economists put more stock in a different metric: the labor force participation rate, which is the percentage of working age residents that are either employed or looking for work. Growth in the labor force participation rate is a strong sign that the economy is healthy enough to generate wage gains, job growth and thus entice discouraged people back into the labor market

Unfortunately, North Carolina’s labor force participation rate has made virtually no progress in years. Just before the Great Recession in December of 2007, North Carolina’s labor force participation rate was above 65 percent, compared to 60.9 percent in August of this year. Even controlling for the longer term trends of more young people going to school before work and more retirees, there is good evidence to suggest that the labor force participation should be higher today than is currently experienced.

All of this clearly shows that we have not come all the way back from the downturn, and that employment prospects are still scarce for many North Carolinians.