Progressive critics of North Carolina’s historic 2013 tax reforms are quick to seize on topline unemployment rate figures in an attempt to discredit the rate cuts. But a closer look shows that in fact our state has enjoyed stellar job growth since taxes were cut.
It is true that the unemployment rate in January 2014 – when the reforms first took effect — was 6.6 percent in both NC and the U.S. By October of this year (the latest data available for both national and state figures), the national rate had dropped to 5.0 percent, while North Carolina’s rate dropped only to 5.7 percent.
From that data, it sounds like North Carolina’s job growth has been left in the dust compared to the rest of the nation.
Those figures can be quite deceiving, however.
In spite of the national unemployment rate dropping more rapidly than NC’s rate, North Carolina has actually created jobs at a faster pace than the national average during that time.
How can this be?
The main difference is the far more rapid growth of North Carolina’s labor force, as a result of both natives re-entering the labor pool and the continued migration of people moving to NC for opportunity. Indeed, a growing labor force is a sign of a healthy economic situation, yet the labor situation can be obscured by simply looking at the topline unemployment numbers.
If the number of people looking for jobs grows faster than the number of jobs being created, the unemployment rate can rise – even if jobs are being created at a brisk pace.
Since January 2014, North Carolina’s labor force has grown by 2.7 percent compared to only 1 percent for the U.S. The federal Bureau of Labor Statistics defines the labor force as the civilian population above age 16 either working or actively seeking work. More people will enter a state’s labor force as they perceive greater job opportunities.
So in spite of a stagnant unemployment rate, North Carolina has in fact been creating jobs at a healthier clip than the national average since the 2013 tax cuts went into effect, reversing a trend in the years leading up to the tax changes.
Nationally, the total number of employed topped out in January 2008, before recession hit. We can use that as our baseline to examine job growth trends in the years prior to NC’s tax reform as it will include both years of recession and several years of subsequent growth.
From January 2008 to January 2014, the national total number of employed (total nonfarm employment) dropped by 0.5 percent. During that time, North Carolina’s number of employed dropped at a far more significant pace, falling by 1.7 percent.
In short, North Carolina’s job picture fared significantly worse than the U.S. average in the years leading up to the historic state tax reforms.
But since January 2014, when our state tax reforms of 2013 began taking effect, that trend has reversed: NC job growth has noticeably exceeded the U.S. average. From January 2014 to October 2015, the number of North Carolina jobs grew by 4.2 percent compared to 3.7 percent for the U.S.
And the growth of Tar Heel jobs has been spearheaded by the productive private sector rather than government growth. Private sector jobs in NC during that time grew at a 5 percent pace, compared to just 4.2 percent for the U.S.
Let us hasten to add that North Carolina’s rosy job growth trends have also been aided by reforms to unemployment insurance, which triggered unemployment tax rate cuts on employers, generating hundreds of millions in tax savings for our state’s job creators.
It’s important to dig beneath the surface to reveal North Carolina’s real job growth trends since the historic 2013 tax reforms. When we do, we find that critics are off base and that job growth has outpaced national averages since the reforms.
(Note: An earlier version of this article incorrectly state NC’s unemployment rate for Nov. 2015 as 6.6 percent, Civitas regrets the error.)