Few Signs of a “Carolina Comeback” Issue 2: A Low-Wage, Low-Skill Recovery “Our employment in North Carolina grew 16% faster than the national average, and North Carolina had the sixth-most added jobs in the country.”

- Gov. Pat McCrory, 2015 New Year’s Reflection Video1

In a video reflection posted at the end of 2015 on YouTube, Gov. Pat McCrory explained the “Carolina Comeback” to his dog, Mo, while on a walk through their Charlotte neighborhood. Among the successes cited by the governor were impressive-sounding rates of job growth. Missing from the governor’s discussion with his trusty canine companion, however, was any consideration of the characteristics of those jobs, notably the wages they pay.

North Carolina’s labor market has added jobs at a slow pace since the recovery from the “Great Recession” began in February 2010. What job growth has occurred, however, has been driven largely by industries that pay low wages and require workers with relatively modest levels of skills and formal education. Such dynamics are not conducive to wage growth, and in fact, hourly wages, after adjusting for inflation, fell from 2007 to 2014 for every group of North Carolina workers except for those in the top 10% of the wage distribution.2

In this issue brief, as with others in this series, we assess the claim of a “Carolina Comeback” by reviewing data drawn from the contraction and expansion phases of the “Great Recession.” (For this brief, the state’s labor market contraction occurred from December 2007 to February 2010, its expansion from February 2010 to the present.)3 When placed in context, little evidence supports the idea of a robust “Carolina Comeback” in the labor market; instead, what growth has occurred has proven insufficient to raise the wages of most working North Carolinians.

Patterns of Job Growth in the “Great Recession”

Most popular discussions of the “Great Recession” have focused almost exclusively on a handful of top-level statistics, such as the number of “payroll jobs” that exist. A “payroll job” simply is a position on the payroll of an

individual business establishment measured at the establishment’s location. 4 Lost in the conversation has been much consideration of the specific industries that have been adding and shedding jobs in North Carolina.

An “industry” is a grouping of business establishments that share similar production processes, and in the United States, a standard classification system is used to place every business establishment into a hierarchical framework that ultimately collapses into a handful of broad economic sectors. 5 An analysis of the specific industries gaining and losing jobs at different points in time can illuminate deeper trends in the labor market.

During the contraction phase of the “Great Recession” stretching from 2007 to 2010, the entire decline in (non-agricultural) payroll employment that occurred in North Carolina was due to private-sector establishments eliminating more positions from their payrolls than they added. (All values in this section are seasonally adjusted).

Every major private industrial sector cut jobs, on net, with the exception of the education and health services sector (Table 1a).6 The manufacturing sector lost the most jobs (-102,100, -19.2%), followed by the construction sector (-75,400, -29.9%), and the trade, transportation, warehousing, and utilities sector (-71,600, - 9.2%). 7 As often happens in recessions, public-sector payrolls expanded with federal, state, and local government employers netting 8,300 positions (+1.2%).8

Since the recovery began in February 2010, every major private industrial sector has added more jobs than it has lost (Table 1b). As of March 2016, the most recent month with complete data at the time of writing, the professional and business services sector had netted the most positions (+136,000, +28.8%), followed by the trade, transportation, warehousing, and utilities sector (+108,300, +15.3%) and

Issue Brief No. 2 of 4

Summer 2016

the leisure and hospitality services sector (+84,600, +21.8%). 9 Public-sector job levels, meanwhile, basically held steady at 723,000 jobs.10

By March 2016, every major private-sector industry in North Carolina had more jobs than it did in 2007, with three exceptions: the construction (-56,000, -22.2%), manufacturing (-73,500, -13.8%), and other services (-3,700, -2.3%) sectors (Table 1c).11 Public-sector employers ended March 2016 with 13,600 (+1.9%) more jobs than they had in late 2007.12

Low-wage Industries Drive the Recovery

A noteworthy aspect of North Carolina’s recovery has been the extent to which just a few industries have driven it. Between February 2010 and March 2016, North Carolina netted 469,300 jobs. Approximately 45% of that growth originated in three industrial subsectors: retail trade (13.9% of the total); administrative and waste management services, which is the subsector that includes temporary help services (16.1% of the total); and the accommodation and food services subsector (15.3% of the total). 13

Of those subsectors, the administrative and waste management services subsector added the most positions (+75,600, +34.2%), followed by the accommodation and food services subsector (+71,600, +21.6%) and the retail trade subsector (+65,000, +15 %).14

In March 2016, the retail trade; administrative and waste management; and accommodation and food services subsectors accounted for 28 of every 100 jobs in North Carolina, up from 25 of every 100 in December 2007.15 And the three broader industrial sectors to which these subsectors belong—respectively, the trade, transportation, warehousing and utilities sector; the professional and business services sector; and the leisure and hospitality services sector—accounted for 44 of every 100 jobs in the state in March 2016, up from 41 of every 100 jobs in December 2007.16

The retail trade, administrative and waste management services, and accommodation and food services industries are known for their relatively low wages. In the fourth quarter of 2015, the most recent one with available estimates, the average wage associated with all payroll jobs in North Carolina was $938 per week (Fig.1).17 The corresponding figure in the administrative and waste management services sector was $681, an amount 27.5% lower than the statewide figure, while the average weekly

wage of $543 paid in the retail trade sector was 42.1% lower than the statewide figure.18 And the average weekly

wage in the accommodation and food services sector was $328, or 65.1% lower than the average weekly wage.19

Besides paying low wages, the three sub-sectors driving the state’s job growth are less likely than other ones to offer important health care and retirement benefits. In 2015, according to the US Bureau of Labor Statistics, 60% of business

establishments in the country offered health care benefits. In the accommodation and food services subsector, 28% of establishments offered health care benefits, and the corresponding figures in the administrative and waste services and retail trade subsectors were 45% and 59%, respectively. 20

Similarly, 20% of accommodation and food service establishments offered retirement benefits, versus 48% of all business establishments. The corresponding value in the administrative and waste services subsector was 34%, and the one for the retail trade subsector was 52%.21

An Expansion of Low-skill Jobs

Another characteristic of the industries that have led North Carolina’s recovery is the relatively modest levels of formal education they require of individual workers.

Consider the food service and accommodation subsector. Assuming North Carolina’s industry mirrors the national one, 85.2% of the positions in 2014 were in one of 28 occupations, of which exactly one required education beyond high school. 22 Meanwhile, 78 occupations accounted for 72.4% of total employment in the retail trade

Approximately 45% of the job growth that

occurred in North Carolina between February

2010 and March 2016 originated in three

industrial subsectors: retail trade, administrative

and waste management services, and leisure and

hospitality services. Those three industries account for 28 of every 100 jobs in the state.

sector, but just eight of those occupations required some level of education beyond high school. In contrast, 107 occupations—of which 91 required at least a high school diploma—constituted 51.6% of all manufacturing jobs.23

Industrial growth patterns since 2010 suggest that joblessness in North Carolina is not chiefly the result of mismatches between the skills demanded by certain industries and the ones possessed by individual workers. Many of the fields netting the most jobs require workers who possess relatively little formal education. Consequently, North Carolina cannot simply educate itself out of the problems of underemployment detailed in the first issue brief in this series.

This is not the same as saying that support of education and workforce development systems is unimportant. Building skills, aiding displaced workers, and facilitating job matches are vital to the smooth functioning of the labor market. Nor does this deny that skill gaps may arise from time to time in certain industries or occupations, although, of course such gaps might be closed by offering higher wages to attract appropriately skilled workers.

Job Growth without Wage Growth

The conditions that have characterized North Carolina’s labor market since 2007—a severe economic contraction, a sluggish recovery, and a high degree of joblessness—are conditions that by and large prevent workers from realizing meaningful increases in their wages. Moreover, when such conditions prevail for a period of years, as has been the case since 2007, workers are apt to see their wages stagnate or decline. Because most households derive almost all of their annual incomes through work, stagnant or falling wages also reduce incomes and living standards.

Since 2007, the typical (median) worker in North Carolina has experienced a noticeable decline in hourly wages. When the “Great Recession” started, half of all North Carolina workers earned more than $15.83 per hour, after adjusting for inflation, half less than that amount.24 That rate fluctuated during the early part of the business cycle and then, in 2009, it began to decline steadily until reaching $15.20 per hour in 2014, the last year with

complete data at the time of writing.25 In other

words, the hourly wage paid to the typical North Carolina worker fell by $0.63, or 4%, over a span of seven years.

Assuming full-time, year-round work, that decline would translate into a loss of $1,310 per year, leading to an annual wage of $31,616 in 2014 versus $32,926 in 2007.26

The phenomenon of declining wages is not limited to workers in the middle of the wage distribution. As shown in Fig. 2, hourly wages, after adjusting for inflation,

were lower in 2014 than in 2007 for every group of workers except for those in the top 10% of the wage distribution. 27 Workers in the bottom 10% of the wage distribution experienced the largest decline in percentage terms (-6.9%), while those in 30th percentile recorded the greatest drop in dollar terms (-$0.70 per hour).28

Meanwhile, workers in the top 10% of the wage distribution saw their hourly wages rise by $1.25, or 3.4%. Assuming full-time, year-round work, that increase would translate into a gain of $2,600, leading to an annual wage of $77,626 in 2014, versus $75,026 in 2007.29

Job Growth Isn’t Enough

As Gov. McCrory noted in his New Year’s reflection video, North Carolina’s labor market has added jobs—albeit at an insufficient pace—since the worst part of the “Great Recession” in February 2010. From the perspective of individual workers, however, what the quality of the payroll jobs being added is just as important, if not more

After adjusting for inflation, the typical worker in

North Carolina earned $15.20 per hour in 2014.

That was $0.63 less than the 2007 figure of

$15.83 per hour. Assuming full-time, year-round

work, that decline translates into a $1,310 reduction in annual wages.

important, than the quantity of jobs. By that measure, North Carolina’s recovery has fallen well short of the mark.

Sluggish job growth concentrated in a handful of low-wage, low-skill industries led to a decline in the wages earned by 90% of working North Carolinians between 2007 and 2014. And because wages are the primary source of income for the overwhelming majority of households in North Carolina, that decline has driven down the income levels and living standards of households across the state, an alarming development that is the subject of the third issue brief in this series.

About the Author

The author of this issue brief is John Quinterno, a principal with South by North Strategies, Ltd., a research firm in Chapel Hill that specializes in economic and social policy. Quinterno has written extensively about labor economics, workforce development, regional policy, postsecondary education, and social insurance. He is the author of the book Running the Numbers: A Practical Guide to Regional Economic and Social Analysis (New York: Routledge), as well as a visiting lecturer at the Sanford School of Public Policy at Duke University. A graduate of the University of Notre Dame and the University of North Carolina at Chapel Hill, Quinterno resides in Chapel Hill.

About Think North Carolina First

Think North Carolina First is a policy and message development think tank that serves as a reliable source of evidence-based research for policy makers and thought leaders. We value high-quality public education, economic growth, protecting the environment and our quality of life, fairness, equal opportunity, and the preservation of an effective social safety net. The policy, research and messaging we generate are grounded in authoritative research, while remaining accessible to the average North Carolinian. It is our goal to produce pragmatic ideas to formulate, debate and implement public policy.

Please direct questions to Justin Guillory at justin@thinkncfirst.org / (919) 867-4340 or to John Quinterno at johnq@sbnstrategies.com / (919) 622-2392.

Copyright © 2016. All Rights Reserved.

References 1 Pat McCrory, “Gov. McCrory Reflects on 2015,” YouTube video, 5:12, December 31, 2015, https://governor.nc.gov/press-release/governor-mccrory-reflects-2015. 2 Author’s analysis of US Bureau of Labor Statistics, Current Population Survey, various years. 3 The National Bureau of Economic Research, a nonprofit research organization responsible for dating business cycles in the United States, defines the last national recession as running from December 2007 to June 2009, after which time the country entered an ongoing recovery. Somewhat different patterns occurred at the state level, with the turning point in the labor market not occurring until February 2010. 4 John Quinterno, Running the Numbers: A Practical Guide to Regional Economic and Social Analysis (New York: Routledge, 2014), 171. 5 Quinterno, Running the Numbers, 140-142. 6 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 7 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 8 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 9 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 10 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 11 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 12 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 13 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 14 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 15 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 16 Author’s analysis of NC Department of Commerce, Current Employment Statistics, various months. 17 Author’s analysis of NC Department of Commerce, Quarterly Census of Employment and Wages, 2015.q4. 18 Author’s analysis of NC Department of Commerce, Quarterly Census of Employment and Wages, 2015.q4. 19 Author’s analysis of NC Department of Commerce, Quarterly Census of Employment and Wages, 2015.q4. 20 Author’s analysis of US Bureau of Labor Statistics, “Table 1. Establishments Offering Retirement and Health Care Benefits: Private-industry Workers, National Compensation Survey, March 2015,” http://www.bls.gov/ncs/ebs/benefits/2015/ownership/private/table01a.pdf. 21 Author’s analysis of US Bureau of Labor Statistics, “Table 1. Establishments Offering Retirement and Health Care Benefits: Private-industry Workers National Compensation Survey, March 2015.” 22 Author’s analysis of US Bureau of Labor Statistics, “Industry-Occupation Matrix Data, 2014-24”; and US Bureau of Labor Statistics, “Education and Training Assignments by Detailed Occupation, 2014.” 23 Author’s analysis of US Bureau of Labor Statistics, “Industry-Occupation Matrix Data, 2014-24”; and US Bureau of Labor Statistics, “Education and Training Assignments by Detailed Occupation, 2014.” 24 Author’s analysis of US Bureau of Labor Statistics, Current Population Survey, various years. To account for changes in the price level, the study converts all income and wage figures to their 2015 values using the Consumer Price Index Research Series Using Current Methods; for more information, see US Bureau of Labor Statistics, “CPI Research Series Using Current Methods,” accessed December 2015, http://www.bls.gov/cpi/cpiursai1977-2014.pdf. 25 Author’s analysis of US Bureau of Labor Statistics, Current Population Survey, various years. 26 This calculation defines full-time, year-round work as 2,080 hours. 27 Author’s analysis of US Bureau of Labor Statistics, Current Population Survey, various years. 28 Author’s analysis of US Bureau of Labor Statistics, Current Population Survey, various years. 29 This calculation defines full-time, year-round work as 2,080 hours.