Labor market woes are national

While North Carolina’s unemployment rate currently stands at just under 6 percent, some argue that problems in the state’s labor market are worse than that one statistic would indicate.

They are absolutely right. But when critics attempt to use this argument to indict the conservative policies of Gov. Pat McCrory and the Republican legislature, the argument falls apart — because the problem in question isn’t any worse in North Carolina than in the rest of the country. Indeed, many liberal-leaning states have as large or larger gaps between their “headline” unemployment rates and broader measures of labor underutilization.

The Bureau of Labor Statistics produces several different unemployment rates. The most familiar one, U-3, includes only those who are both jobless and actively looking for a job. North Carolina’s U-3 rate currently stands at 5.9 percent.

The broadest BLS measure is called U-6. In addition to unemployed workers actively seeking jobs, it also includes discouraged workers (who’ve given up looking for work), “marginally attached” workers (who’ve stopped looking for a time because they are relocating, retraining, or taking care of family members), and the “underemployed” (who have part-time jobs but would rather work full-time).

According to the most recent BLS data, North Carolina’s U-6 rate is 11.6 percent. That’s a shocking, devastating number of idle workers in an economy now many years removed from the official end of the Great Recession. In 2006, just before the onset of the recession, North Carolina’s U-3 unemployment rate was 4.7 percent and its U-6 rate was 8.6 percent. The gap between the two 2006 rates, 3.9 percentage points, was far smaller than today’s 5.7 points. In other words, we didn’t have nearly as many discouraged, marginally attached, and underemployed North Carolinians then as we do now.

The story doesn’t end there, however. North Carolina is hardly the only state with a large gap between the “standard” unemployment rate and the broadest one. New York and Rhode Island also have gaps of 5.7 points. Washington’s is 5.8 points. California’s is 7.2 points. Among nearby states, all but Virginia have similar or larger gaps when compared to North Carolina. And the national average is 5.6 points.

How did these comparisons fare in the past? For 2006, North Carolina’s U-3/U-6 gap of 3.9 points was, again, slightly higher than the national average of 3.6 points.

To point out that North Carolina’s problems aren’t unique is certainly not to discount their significance. But to solve a problem, you first have to diagnose it properly. To claim that North Carolina’s rightward turn in tax and regulatory policy, which began in 2011, has created a crisis of “missing workers” in the state’s labor market would be like examining a kid with his arm in a cast and concluding that the heavy plaster was responsible for breaking the bone.

In 2011, North Carolina’s U-6 rate was a staggering 17.9 percent. It has fallen 6.3 percentage points since then. Few states have experienced as large an improvement. The national average dropped 4.6 points during the same period.

We have a long, long way to go to return our labor markets to a more “normal” condition. Participation in the labor force is significantly below historical norms, for example. While the retirement of Baby Boomers explains part of the trend, it’s not the whole story. But, again, this is a national story, not one specific to North Carolina. The same is true with regard to weak income growth, although in this case North Carolina’s recent performance has indeed been weaker than the national average.

Republican leaders in Raleigh believe that a combination of pro-growth tax policies, less burdensome regulations, careful new investment in new roads and other infrastructure, and a reformed education system will improve the state’s economic prospects in the long run. Although it’s still too soon to draw firm conclusions about their policy mix, it is based on sound empirical evidence and so far has coincided with solid employment gains.

This issue merits sober analysis of the data, not partisan grandstanding.

John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.