RALEIGH — North Carolina’s ongoing struggle with sluggish employment growth provides more evidence that it’s time for the state to change course on economic policy. That’s the advice the John Locke Foundation’s top budget expert offers after North Carolina registered the largest job loss of any state in November.
“Our loss of 12,500 jobs in November dwarfs the 8,600 jobs lost in Massachusetts and the 7,800 jobs lost in Ohio,” said Joseph Coletti, JLF Director of Health and Fiscal Policy Studies. “Clearly, public officials need to recognize that the policies they’re pursuing are not working.”
The N.C. Employment Security Commission’s latest report lists the state’s unemployment rate at 9.7 percent for November, up one-tenth of a percentage point from October’s rate of 9.6 percent. It’s the first time the state’s official unemployment rate has increased since February.
Other data point to a shrinking state labor force, Coletti said. “Along with the lost jobs, North Carolina’s labor force declined by 3,300 jobs last month, and the number of unemployed workers grew by 4,800.”
“North Carolina government has appeared content in recent years to ignore the harm caused by uncompetitive tax rates, while chasing selected companies with the corporate welfare of targeted tax breaks and grants,” Coletti added. “Month after month, state unemployment data show how poorly that strategy works. With new leadership taking office next month in the General Assembly, perhaps we’ll see a reassessment of counterproductive economic development policies.”
“News reports suggest that Gov. Beverly Perdue considers targeted tax breaks ‘essential’ and ‘critical’ to North Carolina’s economy,” Coletti added. “But she’s forgetting the basic lesson of economics: Look at the long-term impacts of a policy, along with the impact on all affected groups, before making a decision. A policy that forces all taxpayers to subsidize the government’s chosen economic winners is bound to produce failure in the long run.”
The state’s official unemployment rate surpassed 9 percent in January 2009 and has not dipped below that threshold since that date. From February 2008 to September 2010, North Carolina’s unemployment rate exceeded the national average.
“Gov. Perdue sees nothing wrong in forcing taxpayers to shell out $9 million in state and local tax breaks so that a Charlotte-based industrial manufacturer, SPX, which had revenues of nearly $5 billion last year, would expand its North Carolina operations,” Coletti said. “In fact, the governor is quoted in media reports as saying ‘the state cannot do this without incentives.'”
If that’s true, the state needs to re-examine its policies, Coletti said. “What does it say about North Carolina that state and local governments feel the need to bribe an existing company to stay put?” he asked. “One likely message is that other state policies — uncompetitive tax rates, burdensome regulations, deteriorating infrastructure — are causing existing businesses to think twice about doing business in North Carolina.”
“Just as important, business owners and entrepreneurs based in other states are less likely to look at North Carolina as a good place to do business,” Coletti added. “Especially when they see items such as the Tax Foundation’s ranking of North Carolina’s business tax climate as No. 41 in the country. No wonder the governor feels the need to rob Peter — the typical North Carolina taxpayer — to pay Paul — the company targeted for government goodies.”
Seasonally adjusted employment decreased in November by 8,200 workers to a total of 4.03 million, according to the ESC. Unemployment increased by 4,800 workers, with more than 433,000 workers now listed as unemployed. The state rate in November 2009 was 10.9 percent.
As Perdue and the new Republican-led General Assembly look for ways to fill a multibillion-dollar state budget hole, one place to start is abolishing corporate welfare, Coletti said. “As the John Locke Foundation explains in its recommendations for the new General Assembly’s First 100 Days, the focus of state policy should be on economic growth, not government-dictated economic development,” he said. “That means cutting taxes and reducing regulations for all businesses, not subsidizing a privileged few.”
The failure of policies based on corporate welfare should be clear by now, Coletti said. “First, we heard that these special handouts were designed to lure high-paying jobs to North Carolina,” he explained. “Then the corporate welfare targeted jobs — any jobs — regardless of the pay. Then the handouts targeted existing companies that were thinking about creating new jobs. Next, the General Assembly paid off companies to preserve operations in North Carolina even if those companies planned to cut jobs.”
“Rather than look for companies that will invite the governor and her economic team to a ribbon cutting, the General Assembly ought to focus on policies that really create jobs,” Coletti said. “Lower marginal tax rates. Reduce the regulatory burden. Convince all business owners and entrepreneurs that North Carolina is a good home for their investments.”