Economic Outlook - November 2008

Tar Heels were no better off last year than at the start of the decade, according to the North Carolina Justice Center, a Raleigh nonprofit. Median household income stood about where it did in 2000. During that time, the percentage of residents in poverty and those without health insurance grew. John Quinterno is a researcher at the NC Budget & Tax Center, an arm of the Justice Center.

Whose fault is this? Democrats have ruled Raleigh since 2000.

These are not simply North Carolina trends. Pretty much the same patterns have played out over the nation. If you look at the same period, adjust for inflation and test for statistical significance, the median household was no better off in 2007 than in 2000.

But no worse off. So is this a major cause for concern?

Yes. This is an extraordinary development — an economic expansion where the typical house-hold was no better off at the end than it was at the beginning. 2000 was the last full year before the expansion started in 2001. And in all probability, 2007 will be the last full year of expansion, given the problems we’ve struggled with in 2008.

Why hasn’t median income grown?

At the state and national levels, we’ve had an underperforming job market. If you don’t have good job creation, you’re going to have less demand for labor, which results in underemployment, fewer opportunities for folks to get a job, as well as fewer opportunities for folks who want to move to a better one. That underutilization of labor makes it hard for workers to push for better wages, which makes it harder for households to improve their income.

For much of this decade, the state unemployment rate has been around 5%, which used to be considered full employment.

But according to the U.S. Bureau of Labor Statistics, it took private-sector employment in North Carolina 71 months — almost six years — to return to its peak level in 2000. You had economic growth at the top level, but it didn’t translate into job opportunities.

Should we sweeten economic incentives to attract more jobs?

In some situations, they may make a difference on the margin. But look at some of the state’s more prominent incentive deals in recent years. Some of those employers may have made the same choice without the incentives, and some may now be interested in walking away, irrespective of incentives. Their business needs have changed, and incentives don’t necessarily moor them to the community or the state.

What should government do to increase median income?

On the federal level for folks that are hurting now, extend or supplement unemployment insurance, extend or supplement food stamps and some of those social-insurance benefits, which would provide a backstop for families and individuals hurt the most by the recent downturn and stimulate the economy. Unemployment benefits are spent very quickly and turned back into economic activity.

Longer term?

At the federal and state level, we need to improve the quality of existing jobs. That’s when you get into things like the minimum wage or the earned-income tax credit. You might want to look at unemployment-insurance eligibility rules that better reflect the way the economy works today. All of those things help create a floor that ensures workers achieve a minimum standard for their hard work. The third piece of the puzzle is longer-term investments that help people upgrade their skills and develop their talents. There are some big opportunities coming up — things like “green” jobs.

You call for an “adequate” minimum wage. How much is that?

About $10 an hour. That’s not necessarily a living wage, but if the minimum wage had just kept up with inflation over the past 40 years, it would be worth about $10 today.

Should the state set a higher minimum wage than the feds?

It’s best if the federal government does it because that creates a level playing field, but if the federal government is not going to act, the state can act and do it in a way that really has an impact.

Won’t that make it hard to compete with other states — and nations — for jobs?

Even when states have higher minimum wages than their neighbors, they haven’t necessarily suffered negative impacts. In fact, it leads to economic gains because the better pay results in more income floating around the community, potentially more demand and improvements in worker productivity.

What’s behind the increase in uninsured North Carolinians?

We have a flawed, almost broken health-insurance system in this country. Second, we are seeing, as a result of that, escalating costs, which make it much harder for smaller firms to offer insurance to employees at affordable prices. And the third thing is a fundamental economic shift. There has been a decline in the kind of industries, like manufacturing, that are more apt to provide health insurance. And we’ve seen the rise of service-related industries, which are less likely to provide health insurance. Because North Carolina traditionally has had more of its economy rooted in manufacturing, we’ve been more affected than other states.

You say a “robust” earned-income tax credit helps people stay out of poverty. Are the ones we have adequate?

The federal earned-income tax credit is a powerful way of supplementing the income of lower-wage working families. The state also took a powerful step by creating an earned-income tax credit a couple of years ago. We set it at a fairly low level. My colleagues who work on this issue would probably argue that the state credit should rise to equal at least 10% of the federal credit.

You’re a bleeding-heart liberal, aren’t you?

Me? A lot of people I know would call me the office Republican.