Guest Opinion: Our workforce is still too small

Published 8:01 am Sunday, December 18, 2022

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By John Hood

Most economic forecasters expect us to enter a recession sometime in 2023. I sure hope they’re wrong. Even a mild recession would throw tens of thousands of North Carolinians out of work. And the ranks of displaced workers would rise into the hundreds of thousands if we suffered a downtown as serious as the Great Recession, when North Carolina’s headline unemployment rate (U-3) topped out at 11.4% in April 2009, or the COVID-induced Great Suppression, when the rate hit 14.2% in April 2020.

Even if the economy manages to stay in positive territory next year, though, its growth will still be hampered by a persistent problem: too many working-aged North Carolinians on the sidelines.

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According to the Bureau of Labor Statistics, the state’s U-3 rate was 3.8% in October. That reflects about 194,000 North Carolinians who were unemployed but actively looking for work, and represents a notable increase from the 171,000 who were jobless in May. Still, by historical standards, unemployment is fairly low.

What’s also low by historical standards, and more worrisome, is labor-force participation. In October 2019, 61.6% of working-aged North Carolinians were either employed or looking for a job. During the COVID crisis, the rate fell to as low as 58.2%. It subsequently recovered a bit but has stayed around 60.5% since the summer.

This seemingly small decline translates into about 93,000 extra North Carolinians out of the workforce. Some are disabled, either officially (from serious bouts with COVID or other illnesses or injuries) or unofficially (drug and alcohol abuse shot up during the pandemic). Others initially responded to COVID by retiring early or accepting unemployment-insurance benefits to stay home and have not yet been induced to reenter the workforce.

Can employers simply offer to pay them more? That’s certainly a viable strategy in some sectors — but for others it’s a nonstarter. For restaurants and retail establishments already operating on thin margins, consumers won’t be willing to bear the higher prices required to offset higher wages. So businesses are automating their operations, cutting back on locations and hours, or both.

In the end, higher wages are only sustainable in the context of higher levels of output per worker. Investing in equipment, hardware and software (i.e. automation) is one way to boost productivity. Another is to invest in technical education and job training. Policymakers have been talking for years about the “mismatch” between what young and not-so-young workers know how to do and what prospective employers need them to do. Community colleges and other providers can close part of that gap. But I’m increasingly convinced that employers and employees will have to close the rest of the gap themselves — and that state policymakers should empower them to do that.

Let’s modify or junk occupational-licensing laws that preference formal instruction over on-the-job training. And let’s expand North Carolina’s education-savings account program so that many more families can use state dollars to purchase career and technical education directly from the public or private providers of their choice.

For another tranche of missing workers, those with drug addictions, my own experience as a grantmaker and reading of the academic literature have convinced me that faith-based institutions offer the best opportunity to achieve lasting results. These providers can and should be fully integrated into the continuum of care in North Carolina — though not if it means compromising the very characteristics, religious faith and practice, that make them distinctive and effective.

In the long run, even a return to pre-COVID norms will not be sufficient to meet the needs of North Carolina households and businesses. As recently as October 2012, labor-force participation was at 63.1%. When I got my first full-time job in North Carolina in 1989, it was 69%.

Yes, elderly residents make up a much-larger share of the population than they did then. But many of them would work at least part time if the Social Security system didn’t discourage it. That needs to change, too, and soon.

John Hood is a John Locke Foundation board member. His latest books, Mountain Folk and Forest Folk, combine epic fantasy with early American history (