Labor market on the mend

by John Hood, John Locke Foundation and NC SPIN panelist, published in Greenville Daily Reflector, December 15, 2013.

North Carolina’s economy isn’t behaving the way it was supposed to.

According to liberal critics of Gov. Pat McCrory and the General Assembly, the state should be losing its attraction as a place to do business in response to “ultra-conservative legislation” such as state budget cuts. But North Carolina’s economy is actually growing faster than the national average.

The federal government administers two monthly surveys of the labor market. The larger one, of employers, measures changes in payrolls. North Carolina is clearly performing well according to the payroll survey, adding some 80,000 jobs over the past 12 months and 174,000 jobs since mid-2011, both higher-than-average rates of job creation.

The smaller survey, of households, is used to estimate unemployment. On this survey, the state’s performance is a bit harder to summarize. On the one hand, North Carolina’s U-3 rate — usually called “the” unemployment rate — was 8 percent in October, down from 9.4 percent a year earlier. On the other hand, the household survey suggests the decline was due to people dropping out of the workforce, not to job creation.

Economists tend to trust the payroll survey more than the household survey to track job changes. But that doesn’t mean we should simply brush off the latter. Instead, we should look more closely at the data.

Using the household survey, the federal government produces several broader measures of the labor market that capture the effects of people dropping out of the workforce as well as those who are working part-time but would like to work full-time.

On the broadest measure, called the U-6 “underemployment” rate, North Carolina’s latest rate was 14.9 percent, an average of rates from October 2012 through October 2013. While that number is still high, it is a huge improvement from the previous period, 2011-2012, when North Carolina’s U-6 rate was 17 percent.

While North Carolina’s underemployment rate was dropping by 2.1 percentage points, the nation’s rate dropped just nine-tenths of a point. In fact, only six states in the country had a larger drop in underemployment than North Carolina did.

To say that the state’s labor market is on the mend is certainly not to say that it is mended. Hundreds of thousands of North Carolinians remain out of work. But the progress is obvious — to those willing to acknowledge it.