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For NC workers, pay stays stubbornly flat

Posted May 8, 2015
Updated May 11, 2015

— For almost two decades, North Carolina workers have opened their paychecks to find not much has changed.

Despite a huge drop in the unemployment rate as the state economy recovers from the recession, economists say take-home pay continues to stagnate, barely keeping pace with modestly rising inflation. That means less prosperity overall, even amid other rising signs of economic health.

In many ways, the problem is a national one. But data show North Carolina’s slow wage growth predates the most recent downturn and has shown a stubborn resistance to respond amid periods of both boom and bust.

It’s an important enough trend to draw the notice of state lawmakers as they continue to discuss ways to spur job growth in both rural and urban areas.

“If you look at income, this state is not divided into rural and urban in terms of our income performance. We're doing bad everywhere,” Brent Lane, director of the Center for Competitive Economies at the University of North Carolina at Chapel Hill, told a Senate committee in April. “It's an economic challenge that's a statewide issue rather than one that can be divided into rural versus urban.”

A state lagging behind

Lane said income growth for North Carolina workers peaked in 1996 and 1997 amid an economic boom across most of the United States. At that point, state workers almost matched the average income for the country at above 90 percent. In 1997, the annual average salary nationwide was $25,288; in North Carolina, it was $23,168, according to federal Bureau of Economic Analysis data.

Since then, growth has stalled.

From 1996 to 2013, both cities and rural areas in the state recorded income growth of only 3.1 percent, Lane said. The rate barely keeps up with inflation and falls behind national income growth of 3.5 percent for cities and 3.9 percent for more rural areas.

The economic downturn certainly didn’t help.

For years, says Duke University finance professor John Graham, the overall workforce has seen a shift from human labor toward machinery. Before the recession, though, new job sectors could for the most part absorb workers displaced by automation.

“We always worry in any given decade, ‘Oh my goodness, have we finally reached the point where you really don’t need people that much for labor?’” Graham said. "I don't think we're there, but what happened during the recession is that companies looked to cut costs in any way they could. That accelerated some of the movement away from labor and toward machines."

Practically, Graham said, that meant low-income workers were the first casualties of layoffs, forced in many cases into lower-paying jobs.

"In a cruel way, it's hardest on people at the lower end of the wage scale because, typically, the jobs are more routine,” Graham said. “They could conceivably be replaced by a piece of machinery."

An uneven recovery

Despite a rash of good economic news for North Carolina over the last few years – rising housing construction, more consumer spending and an unemployment rate of around 5 percent – state lawmakers have taken notice of an uneven distribution of economic prosperity. It’s a conversation made manifest in the debate over the state’s incentive programs, which reward companies for expanding or relocating to the state.

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Rural legislators say they want to see more of that money flow to the rural counties that need it most – especially in light of figures that show the majority of the state’s incentive grants and jobs land in populous counties such as Wake, Durham and Mecklenburg.

But Lane notes that North Carolina’s urban centers aren’t the “growth engines” they’re often thought to be.

When compared to the rest of the country post-recession through 2013, Lane said the state’s highest-ranked metro area by per-capita income growth was Charlotte.

The Queen City ranked 120th out of 382 big cities nationwide.

By contrast, Detroit came in at 104, meaning the city that just last year exited bankruptcy saw per-capita income grow faster than anywhere in North Carolina.

“Such poor income growth performance challenges the assumption that NC's cities should be depended on as engines to pull the entire state ahead,” Lane said in an email. “Instead, we must continue to emphasize economic and income policies that support businesses and citizens statewide.”

The goal, Lane said, would be to catch up with the rest of the country in terms of income growth.

Incentives are one tool, Graham said. But he said a longer-term option is an investment in education and training not just in the form of four-year colleges, but specialized and skilled labor that could easily take positions in high-tech manufacturing.

“If we could have those types of employees, that would encourage companies to come here above and beyond any direct economic incentives,” Graham said.

Changing that demand – more companies competing for more qualified workers – could exert a long-needed upward pressure on pay.

A glimmer of hope, but not for everyone

There are some signs, however, that workers will see wages inch up in the future, Graham said.

His research includes the quarterly Global Business Outlook Survey, which since 1997 has asked company executives about projected hiring and pay. Results from the first quarter of 2015 showed about 70 percent of U.S. companies expected wages to outpace inflation over the next year.

“We finally starting detecting some evidence of labor market pressures,” Graham said. “Whether you want to call that a surprise, I’m not sure, but it’s a surprise in a sense that we’ve been waiting for this, and it finally came.”

Graham cautioned, however, that the wage growth isn’t all uniform. Some industries, such as technology, manufacturing and health care, should see wages rise by at least 3 percent. Others, such as energy, media and retail, will see much slower growth.

Although his survey doesn’t examine North Carolina specifically, Graham said companies in the South Atlantic region indicated they expect much lower wage growth that won’t keep up with inflation – meaning more stagnation.

“There's less labor market pressure in the South Atlantic,” he said. “I don’t want to say that’s pessimistic, but maybe the moderately good thing that looks like it’s starting to happen average across the nation hasn’t kicked in too much in North Carolina.”

A national issue

Even in the areas where expected growth is ticking up, Graham said it’s not as high as economists would like it to be.

It remains a nationwide issue for officials such as Jay Williams, assistant secretary of commerce for the U.S. Economic Development Administration. Like North Carolina leaders, who have been gunning hard for a major automotive plant, Williams said the Obama administration has long seen the expansion of manufacturing as a way forward for wage growth.

“Manufacturing is the most efficient way to increase and spread prosperity to folks in these communities because, on balance across every other segment of the economy, across every educational and skill level, manufacturing jobs pay more,” Williams said in an interview last week. “That is a very effective way to move the needle in terms of wage stagnation.”

Williams spoke last week at the N.C. Tomorrow Summit, a conference focusing on creating future jobs in the state. He also met with state House Speaker Tim Moore to discuss how the U.S. Commerce Department might support some of the General Assembly’s job creation initiatives.

Williams said state and local governments – even the feds – have a few tools to confront the consistent flat line in pay. But actual solutions will require a multi-pronged approach.

“There’s no one silver bullet, no one single way to address wage stagnation,” he said. “Workforce development, expanded trade opportunities, increase in manufacturing – all those things collectively will help drive better opportunity for wage increases.”

37 Comments

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  • Terry Watts May 12, 2015
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    Cheers Army Man!

  • Abrams Tanker May 12, 2015
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    In economics, where there is cause, there is effect. Many people look at the short-run for solutions however the long-run effect can be catastrophic. Raising a persons wage will help in the short-run.....until cost-push inflation occurs......then they are practically in the same situation they were before. You can rest assure that the manufacturing and service sectors will still maintain their profit margins after a minimum wage increase. They will raise the price of their goods/services to make up the difference leaving the consumer paying more for the same.

  • Abrams Tanker May 12, 2015
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    Yes I can, Terry. While I may not always agree with your opinion I most certainly respect it.

  • Chris Holder May 12, 2015
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    Thanks for the discussion *thumbs up*

  • Terry Watts May 11, 2015
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    And they are right. Giving people more money increases their buying power. I don't think anyone will dispute that.

    But there are other factors than just how much we pay people. As pay increases, so does the cost of services and goods. As costs of services and goods increases, the number of those not able to afford those goods increases, ie if I'm unemployed and min. wage has forced milk from $1 to $2 per gallon, raising the min. wage has actually made my impoverished status worse...

    I'm not going to argue that we shouldn't try to do something to help people make more money. I think we should. More people with more money in their pockets drives the economy. I just don't think increasing the Min. Wage is the way to do it. IMO, those that are in that situation should do something for themselves to increase their value. And if they need assistance paying for classes, or getting a license, or whatever, I'd rather help with that...

  • Chris Holder May 11, 2015
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    Then why, apparently according to most recent studies, is it taken as fact by most economic researcher that raising the minimum wage improves a family's food-buying power and moves people further above the poverty line than they started out with?

    Wages across the scale, but especially at the bottom of the scale, must keep up with the cost of basic living and basic goods. They haven't, and that largely started after the 1970s and has accelerated in the 2000s.

    http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/04/economists-agree-raising-the-minimum-wage-reduces-poverty/

  • Terry Watts May 11, 2015
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    And Chris Holder: don't let my comments make you think I'm not a flaming liberal... Abrams can attest to that!

  • Terry Watts May 11, 2015
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    We are being realistic here. If increasing the Min. Wage would have solved the problem, it would have already been solved with the last min. wage increase. What has instead happened is that the dollar has devalued to the point where that increase is negligible. So while on paper, a worker may make x% more in actual pay, their expenses go up to match and they are back exactly back where they started. Meanwhile, workers that make more than min. wage find their salaries don't have the same buying power before, ie they take a pay cut.

    A "real" method of increasing one's pay rate is to increase one's value to an employer. Education is a great place to start - we all know that college grads tend to make more then their non-grad peers. People who do nothing to increase their value shouldn't expect an increase in their value. In fact, as market forces apply, it is reasonable to think that the value of a certain task would go down...

  • Chris Holder May 11, 2015
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    It would require a change in behavior and patterns of consumption, see my previous post.

    Let's also be realistic here -- increasing the minimum wage of McDonalds workers would increase the price of a Big Mac somewhere between 17 cents and a few dollars, depending on who you believe -- most reports I see are less than a dollar increase (a couple-dollar increase for combos).

  • Abrams Tanker May 11, 2015
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    Terry is absolutely correct. The actual cost =labor+raw materials+other direct costs such as shipping, utilities, insurance, etc. If you are only willing to pay $2 (market price) for a chocolate bar and it costs $2.50 to make it then the manufacturer must reduce the actual cost by getting cheaper supplies, labor, or both. This is what happened to the US textile industry. It became more cost effective to make textiles out of country.

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