By Mike Walden
Almost every week we see another positive comment or ranking about the North Carolina economy. For example, recently North Carolina surpassed 5 million people in the labor force, which includes people working plus people looking for work. Our state now has the ninth-largest labor force among all states, and we’re just behind the eighth-largest state, Georgia.
It wasn’t always like this. Historically, southern states struggled in the late 19th and early 20th centuries as the national economy shifted from an agricultural base to a manufacturing base.
In the last half-century, North Carolina has remade its economy. Sectors like technology, pharmaceuticals and finance have surpassed the traditional mainstays of tobacco, textiles and furniture. A potential new energy sector is in the making.
The state’s success can be seen in the numbers. Economists’ go-to measure of economic growth, the annual increase in real gross domestic product – translated, the increase in the value of all goods and services made or provided, after removing inflation – has been greater in North Carolina than in the nation for most of the last 45 years.
What has made North Carolina such a popular state for growth-minded businesses in search of a location, and for out-of-state workers and families looking for a new home? There are several factors, some of which are well accepted. Others can spark debate.
Let’s begin with the noncontroversial factors. North Carolina has a wonderful natural geography and amenities. One side of the state has spectacular mountains, and the other side has the ocean and beaches. While summers can be toasty and humid, the state usually avoids long and cold winters.
North Carolina also has good access to markets, especially on the East Coast via several interstate highways. Interactions with global markets have also improved in recent decades with many new direct international flights, particularly from Charlotte Douglas and RDU international airports.
It’s also less expensive to live in North Carolina. The latest data from the federal government show average prices are 6% lower in the state than in the nation. Some interstate comparisons show even bigger differences – for example, average North Carolina prices are 19% below California prices and 16% less than New York prices.
North Carolina benefits from its geographic location. The southern part of the country, starting at the Atlantic Ocean and going west to Arizona, has for decades been attracting retirees seeking sun, businesses desiring bigger sales and households seeking new starts.
Of course, businesses want a well-trained workforce. When it comes to higher education, including community colleges and universities, North Carolina has one of the best bargains in the nation. Due to the generous state financial support of North Carolina’s public colleges and universities, North Carolina ranks very high among states for the affordability of those public educational institutions. For businesses, North Carolina’s higher education public institutions are known for developing specialized programs for emerging economic sectors.
Now I’ll dive into the more controversial factors, which revolve around K-12 education and worker pay. North Carolina ranks low among states for per-pupil spending in K-12 schools. Although North Carolina compares reasonably well on national reading and math test scores compared to the nation, our scores still rank below proficient.
This has caused an ongoing debate about whether the state’s tax rate reductions in recent years – while attractive to businesses and many earners – may be hurting North Carolina’s competitiveness in the future. One side says the answer is yes, and they want to reverse some of the tax rate reductions, while the other side says numerous nonmonetary factors are important to student success. This debate will likely continue.
North Carolina has a low minimum wage and deters unionization by being a “right to work” state. While these policies may be good for businesses that benefit from lower labor payments and greater control over workers, critics say these benefits sacrifice worker well-being. Both average per-capita yearly income and average hourly earnings in North Carolina are lower than in the nation, even after accounting for the 6% lower cost of living in the state.
Of course, the state could raise the minimum wage and eliminate the “right to work” provision, and many are in favor of these moves. Significant economic research over several decades suggests these moves could not only deter some new business locations and start-ups but might also motivate existing firms to use less labor and more technology for their tasks.
One alternative option would be to reinstitute an earned income tax credit (EITC) in North Carolina. The EITC is a program that refunds some, all or even all of a worker’s income tax payments plus additional funds, providing more money to increase the worker’s standard of living. The federal government has an EITC and more than half the states have an EITC for state income taxes. North Carolina had an EITC until 2014.
North Carolina’s economy has been on the move for several decades, and there appears to be no let up in this trend. Several factors are behind this success. But are there downsides to some of those factors that need to be addressed? You decide.
Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.
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