YOU DECIDE: What ails North Carolina’s economy?

Date posted: July 5, 2013

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

North Carolina’s economy was slammed by the Great Recession, with statewide unemployment passing 11 percent and more than 300,000 jobs being lost between 2007 and 2010. In the last three years, the state’s economy has rebounded; 200,000 jobs have been added, and aggregate production of goods and services is now back to pre-recessionary levels. Still, the statewide jobless rate in mid-2013 was 8.8 percent, 1.2 percentage points higher than the national rate.

But while we can talk about a statewide economy, traditionally North Carolina has been comprised of many regional economies. In particular, the economies of the large urban areas have followed a very different path than the economies of the state’s small towns and rural areas. Perhaps at no time in the state’s history have we seen these economic paths diverge more than in the last quarter century.

Specifically, the state’s urban regions have prospered, while many small towns and rural regions have made few if any gains. For example, since 2001 North Carolina’s metropolitan counties have experienced a 23 percent increase in total output of goods and services (technically called gross domestic product), while non-metropolitan areas (rural areas and small towns) have had a gain of only 6 percent.

Two factors are responsible for these divergent results, the development of information technology and the increase in foreign trade.

Information technology has spawned entire new industries, rendered many older industries obsolete and has replaced brawn-power with brain-power as the most significant worker characteristic. What’s more important now is how workers think, solve problems and create new solutions. This means college-educated workers, particularly in the scientific, technological and management fields, are the hottest commodity for companies.

The information technology revolution has been a boon for urban areas for two reasons. First, this is where most colleges and universities are located, urban areas are where most young college grads want to be. So expanding companies in the new economy know they can get a ready supply of college graduates in big cities.

Second, many in the information technology field — such as program designers, web site developers and the aforementioned young workers — value social interaction and collective decision making and problem solving. By definition, these interactions are easier in highly dense urban areas.

At the same time, the second recent trend-setter — increased world trade — has worked to the disadvantage of many small town and rural areas. In North Carolina in most of the 20th century, the largest employer in small town and rural North Carolina was the textile and apparel industry. Also important were the forestry, furniture and, of course, tobacco industries.

These industries have each been adversely impacted by the movement in the last quarter-century toward more free and open world trade. The North Carolina textile and apparel industry has lost 60 percent of its production since 1997, much of it to lower-cost foreign producers. The domestic tobacco, furniture and forestry industries also face stiffer foreign competition.

So North Carolina’s urban and rural areas have gone in different directions, and this can clearly be seen in the last three years since the bottom of the Great Recession and the slow recovery. Since early 2010, the state’s big three metropolitan regions — the Triangle (Raleigh-Durham-Chapel Hill), Triad (Greensboro-Winston-Salem) and Charlotte have increased their jobs at a 7 percent rate, 40 percent faster than the national and state rates. These three areas alone have accounted for 70 percent of all job growth in the state.

Indeed, two of these metropolitan areas, the Triangle and Charlotte, now have employment totals above their pre-recessionary levels. In contrast, job growth since 2010 in North Carolina outside the big three metro areas has been a very slow 3 percent.

So a good case can be made that what ails North Carolina’s economy is the hurt that has been put on small town and rural areas from trends beyond their control over the last 25 years and particularly in the last decade. While these trends have largely benefited urban areas, they have battered rural regions.

Furthermore, what’s also worrisome is that some development strategies may actually make the problem worse. Young people from rural areas who go off to urban colleges may never come home.

The urban/rural divide in North Carolina is not new, but it appears to have widened. You decide if it is the greatest economic challenge faced by the state.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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