John Quinterno, South by North Strategies, Ltd.
This column originally appeared in the Raleigh News & Observer.
During North Carolina’s recovery from the “Great Recession,” political observers have focused myopically on one economic indicator: the unemployment rate. Recent declines in that rate have led those commentators to celebrate a “Carolina Comeback.” That claim, while alliterative, is too simplistic to describe the health of the economy, and it overlooks an even more alarming trend – the steady decline in household income and, by extension, living standards.
Judged against the criteria of rising incomes and improving well-being, North Carolina’s comeback is far short of the mark.
Households across North Carolina depend on the monies earned through work for most of their annual incomes, meaning that their well-being is intertwined with the labor market. Tight labor markets provide opportunities for jobless individuals to work and for employed persons to obtain raises or to find better jobs. But since the onset of the Great Recession, North Carolinians have suffered a labor market characterized by anemic job growth, high rates of joblessness and stagnant wages.
Since 2007, the inflation-adjusted income of the typical North Carolina household has dropped by more than 8 percent. No one would be surprised to learn that household incomes fell during the contraction phase of the Great Recession, but what is surprising is the extent to which household incomes have fallen during the recovery that began in 2009.
As documented in a forthcoming study commissioned by Think NC First, the typical or median North Carolina household in 2007 had an inflation-adjusted or real income of $50,186. During the business cycle’s contraction phase 2007-09, this value fell significantly, declining by 5.5 percent, or $2,755. During the recovery from 2009 to 2013, income fell by another 3.2 percent, or $1,525. In other words, the typical North Carolina family lost $4,280 in annual income between 2007 and 2013, an amount equal to almost 75 percent of what a middle-income family spent on food in 2013.
Another disturbing consequence of the recession is the loss of all the progress the state had made in boosting median household income and lifting the state figure to the national one. In 2012-13, the real income of the typical North Carolina household was effectively no different from what it was in 1984-85, a time when, fittingly, “Back to the Future” was one of the most popular films in the country. And after having achieved parity with the national figure in the late 1990s, the gap between the state and national median household income levels now is wider than at any time since the early 1980s.
A key driver of the fall in income is a sustained fall in labor earnings. Between 2007 and 2013, the real annual earnings of the typical North Carolinian (age 16+) dropped more than $2,000, with declines occurring during the business cycle’s contraction and recovery phases. Significant declines in earnings have occurred for every group of workers (age 25+) regardless of their level of education. For example, the annual earnings of the typical person with a graduate degree have fallen by 5.8 percent since 2007, with the entire drop occurring during the recovery.
Given these trends, it should come as no surprise that the distribution of income in North Carolina has grown more unequal, that increases in inequality occurred during the business cycle’s contraction and recovery phases or that income is distributed more unequally in the state than in the country.
The narrowing of the economic debate in North Carolina to a simplistic one about whether the unemployment rate is up or down passes over in silence the larger question of whether the economy is working for the typical household by raising income and living standards. The narrow debate further ignores the role that state-level policy choices play in boosting or undercutting wages and incomes.
Allowing inflation to erode the value of the minimum wage, refusing to enforce and to modernize labor laws, compromising the effectiveness of the unemployment insurance system, making work more costly for low-income families by repealing the state earned income tax credit and enacting tax policies that fail to boost growth yet drain revenues needed to invest in public services – all of these choices place downward pressures on wages, incomes and living standards.
State leaders have levers they can pull to create policy conducive to robust, equitable growth. Doing so is a choice, however, just as the decision to do nothing is a choice to accept the status quo – a status quo marked by an incomplete recovery that slowly is producing a poorer, more unequal state.