July 15, 2010
Click here to view and here to listen to Joseph Coletti discussing North Carolina’s latest unemployment data.
RALEIGH — Uncertainty about the economic future continues to slow North Carolina’s efforts to recover jobs lost during the recent slump. That’s the assessment the John Locke Foundation’s top budget expert offers after reviewing new state unemployment data.
“Business owners are bound to think twice before moving forward with hiring new workers,” said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. “When the federal government jumps from one ‘stimulus’ plan to the next without adopting policies that foster long-term economic growth, it’s only natural for businesses to proceed with caution.”
Recent action at the state level offers no more certainty, Coletti said. “North Carolina legislators’ new state budget digs a $3.3 billion hole for the next budget year,” he said. “Necessary contributions for state pension and health care obligations could add as much as $4 billion to that figure. Since the typical government response to that kind of budget hole is higher taxes, it’s reasonable for business owners to worry that a job created today could be taxed out of existence soon.”
Coletti’s most recent Spotlight report on the 2010-11 state budget highlights the state’s overreliance on federal bailouts and “temporary” tax increases. “Take away those uncertain funding sources, and you’re left with a structural deficit of 15 percent to 35 percent of state general fund appropriations,” he said. “That’s not the type of budget hole the governor and lawmakers can fill by doing business as usual. Business owners who are trying to plan ahead cannot know how the state will try to address that structural problem.”
The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 10.0 percent for June, down four-tenths of a percentage point from May’s adjusted rate of 10.4 percent.
February 2010 marked one full year of unemployment in excess of 10 percent. June marks the 16th consecutive month in that territory. North Carolina’s unemployment rate is 0.5 percentage points higher than the national average of 9.5 percent. The state rate has exceeded the national unemployment rate for more than a year.
The state’s budgetary uncertainty compounds problems created by the federal government, Coletti said. “We’ve seen a flurry of 2,000-page bills flooding out of Washington for more than a year,” he said. “There’s no strong indication that this flood will recede any time soon. This type of legislative overreach offers a recipe for economic uncertainty. And speaking of uncertainty, the Bush tax cuts expire next year unless Congress decides to take some action.”
“If you’re unable to determine your company’s tax liability, your health care obligations, or the resources you must set aside to deal with new and expanded rules and regulations, it’s a risky bet to add substantial numbers of new workers,” Coletti added. “None of us should be surprised to learn that many businesses have been holding on to cash until they have a better sense of what government is going to do to them.”
Targeted tax credits cannot overcome the impact of uncertainty, Coletti said. “Offering a business a few hundred dollars a year to create a job that must stay in place for three years never makes a lot of business sense,” he said. “It’s a particularly bad idea when business owners have no idea whether a job added today can remain in place next year.”
Seasonally adjusted employment decreased in May by 5,557 workers to a total of 4.089 million, according to the ESC. Unemployment decreased by 20,468 workers, with more than 454,000 workers now listed as unemployed. The state rate in June 2009 was 11.0 percent.
Regardless of month-to-month changes in the unemployment data, North Carolina’s recovery will be slow as long as business owners remain uncertain about the future, Coletti said. “Government can — and does — throw money at problems, but the only real solution to unemployment woes involves business owners and entrepreneurs deciding to invest money again,” he said. “They will make those investments only when they’re convinced that government will avoid the new taxes and regulations that hold their businesses back.”
For more information, please contact Joseph Coletti at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].