For NC workers, pay stays stubbornly flat

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.

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."

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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.

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.”

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.”