[Note: This is an HTML version created mechanically from the original PDF version of the report. Some formatting may not follow the original report's layout. Charts and sidebars in the original may not be available in this version. This version made with the permission of the North Carolina Justice and Community Development Center. Further reprinting requires permission from them.]
Sorien K. Schmidt Elizabeth A. Jordan
North Carolina Justice and Community Development Center May 2003
About the Justice Center
The North Carolina Justice and Community Development Center (Justice Center) is a non-profit, nonpartisan organization founded and governed by low-income people, non-profit groups and legal and community leaders. The Justice Center is dedicated to helping low-income and working poor North Carolinians escape poverty and achieve economic security. It includes several well-known projects within its umbrella and is
professionally staffed by a team of lawyers, community educators and policy analysts who advocate on important public policy issues before state and local governments; conduct research and publish analyses
on important public policy issues; provide direct education and training in order to empower nonprofit's and community groups; and represent individual low-income clients and groups of clients in important litigation
with statewide impact. The Justice Center is the only non-profit in North Carolina that seeks to bring such a comprehensive approach to helping low-income people achieve economic security.
This report was made possible by grants from the Z. Smith Reynolds Foundation and the Ford and Mott Foundations.
The authors wish to acknowledge the contributions of Rob Schofield, Sheria Reid, Adam Searing, Elaine Mejia, Bill Rowe and Kim Cartron.
We also thank the NC Alliance for Economic Justice for assistance with the printing.
Report layout by Phyllis Nunn Cover photo © David Pollack/ CORBIS
© COPYRIGHT May 2003
PUBLISHED by the NORTH CAROLINA JUSTICE and COMMUNITY DEVELOPMENT CENTER 224 S. DAWSON STREET
P. O. BOX 28068 RALEIGH, NORTH CAROLINA 27611
919/ 856-2570 PHONE 919/ 856-2175 FAX
www.ncjustice.org
Introduction................................................................................................................................... 2
Part I: The NC Living Income Standard: The REAL Cost of Living.................................... 5
How Much Is Too Little? The Federal Poverty Level
How Much Is Enough? The NC Living Income
Standard
More Accurate but Still Conservative
Families Need More Than Double Federal Poverty Level to Live
The North Carolina Living Wage
Minimum Wage is Nowhere Near a Living Wage
Part II: How Are North Carolina Families Faring?............................................................... 9
North Carolina Families Earning Less Than A Living Income
Working in the Public Sector Does Not
Pay
Working Hard But Getting Nowhere
Women, Children, Minorities Disproportionately Under Living Income Standard
Part III: Why Are So Many Working Families Unable to Earn a Living Income?......... 13
Wages Decline in Value
The Good Jobs Leave
Job Market Shifts Mean Workers Lose Income
Low
Pay or More Education: The New Job Choice
Recession Accelerates and Uncovers the Job Market Shift
Dislocated Workers
Unemployment Quick to Grow, Slow to Go: The No Job Recovery
Tax Policy Making More Poor Families
Education Pays
Part IV: Impact on Families and the State............................................................................. 21
Families Do Not Have Enough to Eat
Families Cannot Afford Safe Housing
More Families are
Uninsured
Programs That Counter the Downturn
Failure in the Corporate Marketplace: Inadequate Consumer Protections
Income Inequality Grows: The Very Rich Get Richer and Everyone Else Loses Income
Displaced Workers See Permanent Income Loss
The Urban -Rural Divide Becomes a Chasm
Part V: Conclusions About Making North Carolina's Future........................................... 29
Part VI: Achievable Recommendations.................................................................................. 31
IMPROVE WAGES: Eliminate Pay Grades Offering Less than a Living Wage; Provide State Employees With Significant Flat Annual Pay Raises; Pass Local Living Wage Ordinances; Gradually Raise State Minimum Wage
To $10.60 Per Hour
PREPARE AND RETRAIN THE STATE'S WORKFORCE: Require Employers To Report Mass Layoffs And Increase Employer Compliance; Enhance and Publicize Service Available to Dislocated Workers; Improve and
Coordinate Workforce Development Efforts; Provide Funding to Ensure North Carolina's Public Education System Prepares All Children for Success in the Job Market
INCREASE TAX FAIRNESS: Implement A State Earned Income Tax Credit; Replace Regressive Taxes with Fairer Revenue Sources; Allow Business Tax Incentives Only for Creation Of Jobs Paying a Living Wage
ENSURE ACCESS TO BASIC NECESSITIES: Improve the Unemployment Insurance System; Ensure Families Have Access To Health Insurance; Update Public Assistance Programs To Serve Working Families and
Dislocated Workers; Ensure Access To High Quality, Affordable Child Care; Increase The Supply Of Affordable, Safe Housing
PROTECT CONSUMERS FROM ABUSIVE PRACTICES: Adopt New Protections For Consumers Who Purchase Or Own Manufactured Homes; Reform Or Abolish Payday And Other Forms Of Predatory Lending;
Expand Foreclosure Protections
Endnotes ............................................................................................................................. 37
Appendices......................................................................................................................... 39
Appendix A: Living Income Standard Methodology
Appendix B: Calculating the Number Under LIS
Appendix C: Income Inequality among Families in North Carolina
Appendix D: Living Wage Policies Passed in U. S. Localities Appendix
E: Answers to Questions about Raising the Minimum Wage During a Recession
Appendix F: States with Minimum Wage Laws Higher Than Federal Minimum Wage Appendix
G: States with an Earned Income Tax Credit
Appendix H: Resources
Two years later
Given the sobering tenor of the original report, the title of this follow-up is probably no surprise to anyone. Two years later, much has changed in our world since the period of
economic boom that brought down the curtain on the 20th century. The events of
September 11 and the ensuing international turmoil have helped contribute to a sharp economic
downturn. Widespread job losses that once afflicted only aging industries like tex-tiles
and furniture have spread to the high tech sector -short-circuiting, at least temporarily,
the careers of thousands of workers who once seemed invulnerable.
In the public sector, tax revenues have nose-dived and budget surpluses have quickly
turned to deficits. This situation has been
exacerbated, of course, by a growth in demand for government assistance that always
accompanies recession, as well as a general reluctance by policymakers to update the tax
code to reflect a 21st century economy. One thing that has changed little since 2001,
however, is the status of North Carolinians at the bottom of the economic ladder. Not surprisingly,
two years of recession and state budget cutting have failed to help those living
below the LIS. This fact is confirmed by a new and refined version of the LIS that generates
an even more accurate portrayal of real poverty throughout the state on a county-by-county
basis. The bottom-line? Nearly two-thirds of North Carolina families with children fail to
earn a living income. These families comprise 20% of the individuals in the state and 46% of
the state's children.
In 2001, at the conclusion of the last economic boom, the North Carolina Justice and Community Development Center released a ground-breaking report that explained how thousands of the state's families were being excluded from the then-prevalent prosperity. Entitled Working Hard is Not Enough (Working Hard), the report detailed the decline in real wages, the inadequacy and obsolescence of the minimum wage and the federal poverty level, as well as the human toll of the persistent poverty afflicting so many. Perhaps most importantly, Working Hard also unveiled a powerful new analytic tool for assessing economic well being known as the "Living Income Standard" or "LIS." The report provided a detailed, county-by-county breakdown on the huge numbers of North Carolinians whose incomes fell below this standard. The central, sobering message of Working Hard was that, even in the best of times, government must do more to alleviate the inequities of the modern North Carolina economy. Without direct, innovative and, ultimately, much more aggressive action by government to attack inequality, North Carolina was at-risk of becoming a permanently divided society; a society of "haves" and "have nots"; a society in which the presence of a broad middle class was nothing but a faded memory from a naive, bygone era.
The growing gap
While the real poverty numbers revealed by both reports are disturbing and provocative,
what may be most striking is the latest information offered on the issue of income inequality.
These data reiterate the findings in the original report that the gap between the rich
and poor in North Carolina continues to grow -both on a long-term and short-term basis.
Among the "Highlights" North Carolina has the tenth largest
income gap in the country between rich and poor. From the late 1970's to the late 1990's
the average annual income of a family in the bottom 20% only rose $730 from $12,380 to
$13,110, but the average income of a family in the richest 20% rose $42,400 to $131,600.
The gap between the richest 5% and the poorest 20% was even more striking as the average
income for a family in the richest 5% rose from $138,070 to $210,420.
The gap has worsened since recession began. Families earning the bottom 60% of
income appear to have lost all income gains they made during
the economic boom of the late 1990's. In fact, on average
most of these families actually have lower real
income than they did five years ago. The top 20% of
earners have only lost a small portion of their boom-time
gains and the top 5% are still seeing income go up.
The data will also confirm a similar increase in the gap
between the rich and the middle class. Families in the middle
fifth saw their incomes only rise from $38,400 to
$47,110 over the same two-decade period. But recession has wiped out
all of the 1990's gains of the middle fifth as well.
The middle class is slowly disappearing as low-skill, good-paying
manufacturing employment is replaced with high-skill work out of reach
for most North Carolinians, or service and retail jobs paying less than a living wage.
Manufacturing workers who have lost their
jobs in plant closings are returning to work at about half their previous wages.
The Challenge Ahead Some obvious questions arise in light of
this new and serious news: Is there anything that can be done? More specifically, what is
the point of a new report if all it does is to paint an even more distressing portrait of our
state? Is there any hope to reverse these trends?
The answer is definitely yes, we can improve things. It is not the intent of Working
Hard is Still Not Enough to imply that North Carolina's challenges are
insurmountable. To the contrary, it is the purpose of this report to catalog and demystify North Carolina's central economic and policy challenges so that they can be thoughtfully
and intentionally addressed. In so doing, this report confirms the central
finding of the original: North Carolina's growing inequality is a long-term problem
that is, ultimately, neither a function of economic expansion or recession. These problems
did not arise overnight and they will not be resolved quickly. However, there are clear steps the state can take to begin to directly address them. Our best minds and leaders, our dedicated workers, employers and families must help in the effort. And just as we have risen to take on the challenges of terrorism, so too can North Carolinians rise to the economic challenges facing the state in the 21st century.
North Carolina ranks tenth in the nation for largest income gap between rich and poor. Is the dream of a better life for low-and middle-income people slipping away, or will leaders address this challenge?
Wage Improvements Gradually increasing public and private wages so that no worker earns less than a living wage.
Workforce Preparation and Training Providing funding and a clear, coordinated plan to address the needs of dislocated workers and workers in need of training, as well as, recommendations for ensuring that all of North Carolina's children receive a public education that prepares them to succeed in the job market.
Increasing Tax Fairness Halting the shift of tax policy which has been reducing taxes on the wealthy while putting a greater tax burden on low and middle-income households.
Sustaining Low-Income Families by Ensuring Access to Basic Necessities Recommendations for how best to ensure all families have access to health care, housing, child care, unemployment insurance benefits and other assistance as needed.
Protecting Consumers from Abusive Practices Adopting protections for consumers purchasing manufactured homes, facing foreclosure or victimized by predatory and payday lending.
It was the premise of Working Hard that North Carolina could not solve its significant structural problems unless it attacked the income gap on a broad front in a host of specific areas. As in the original, the recommendations in Working Hard Still provide a clear and detailed blueprint for improving life for all North Carolinians. They include:
Recommendations
H ow are North Carolina families faring in these difficult economic times?
The short answer is: not at all well. A longer, more informative answer is derived
from finding out how much they actually need to live and comparing that figure
with the amount they are actually earning. Unfortunately, the federal poverty
level is not helpful in arriving at this answer. When created, federal poverty
level was intended only to measure how much income is too little. Since then
it has fallen further behind the reality faced by families. The Justice Center,
therefore, has developed an alternate measure, the Living Income Standard (LIS).
The LIS is a bare-bones budget indicating how much average families in North
Carolina must have to meet their basic needs. From this we can calculate the
hourly wage parents must earn to support their family.
How Much is Too Little? The Federal Poverty Level
Although the federal poverty level (FPL) is commonly used as a standard measurement, the federal government, elected officials, and the media have long recognized its inaccuracy. Indeed, Mollie Orshansky, the creator of the federal poverty thresholds, prefaced her first writing on them by noting that "if it is not possible to state unequivocally 'how much is enough,' it should be possible to assert with confidence how much, on average, is too little." [See Calculating the Federal Poverty Level] Thus, from the outset the federal poverty threshold was not intended to indicate what a family needed to live, but at what point their income was clearly inadequate. Since other official measures of poverty were lacking, however, Orshansky's formula was adopted and continues in use. Why FPL is inadequate is simple. First, it is based only on the dollar amount of food items and assumes that the cost of food equals one-third of all the family's costs. But rents have skyrocketed and new items in the family budget, such as child care, were not taken into consideration in 1965 when FPL originated. Second, Orshansky's FPL was intended to measure after-tax income, but is ow commonly applied to before-tax income estimates. Not a good measure when it was created, FPL now is even less a good estimate of necessary family income. It only shows how much is clearly too little.
How Much is Enough? The North Carolina Living Income Standard
The Living Income Standard (LIS) is a basic budget for two common family types in North Carolina. [See Chart 1: The North Carolina Living Income Standard.] It focuses on what it costs for a) a single parent with one child and b) two parents with two children, to live in the rural and in the urban areas of North Carolina. These families are representative of average North Carolina family types. The LIS calculation assumes that all parents, single or married, must work full time. It also assumes they are very frugal and purchase only basic necessities. Given these assumptions, the LIS calculates the family's costs for seven basic budget items: housing, child care, food, health care, transportation, miscellaneous expenses (e. g., clothing or cleaning products), and taxes. Reliable, consistent government sources are used to estimate these costs for 2001 because that is the most recent data available for each of the cost items. [See Appendix A on LIS Methodology.] In addition, the cost estimates used here are specific to North Carolina and to individual counties. Because of the additional level of detail, geographic specificity, and the addition of contemporary family expenses, the LIS offers a much more accurate estimate than FPL of the real costs for families to live in North Carolina.
PART I: The NC Living Income Standard: The REAL Cost of Living
More Accurate, But Still Conservative
Although more accurate than FPL, this standard remains a conservative estimate
of what families actually need. To calculate the LIS, we first determine how
much a family needs at a bare minimum for each budget item. Because the budget
is focused on survival needs, some common family budget items are left out.
For example, there is no allocation for eating out, video rentals, birthday
presents or an occasional outing. The LIS also does not include a budget estimate
for savings, which is omitted because of the difficulty of accurately estimating
it. All the same, families need to save in order to purchase assets of lasting
value such as a house or college education. As the number of employers offering
pensions or health care benefits dwindles, savings have become even more critical
to a family's financial security. Debt is also regularly present in an average
family budget, but not in the LIS. A car, a house, or even a new roof can make
borrowing obligatory - as will a job lay-off, a medical emergency, or some other
disaster. Since credit is more readily available than ever, the median amount
of debt held by an American family has increased dramatically. Because it is
too cumbersome to discuss 200 different Standards for two family types in each
of the 100 counties, the LIS as used in this report reflects weighted averages
for rural and urban areas of the state. [The LIS for each of the 100 counties
is available in a separate document.] Use of these averages, however, even when
weighted for population, masks some of the wide variation of certain budget
items from county to county. This is especially true of housing costs. In the
41 least expensive counties, a two-bedroom apartment rents on average for $412
per month. But in the Triangle, the most expensive housing market in the state,
the same two-bedroom apartment rents on average for $755 a month. Similar differences
exist for child care also. To partially capture this variation, we maintain
separate designations for rural and urban localities, and when a single statewide
estimate is needed, we use weighted averages. Nonetheless, housing and some
other costs in the twelve urban counties around the Triangle and Charlotte remain
substantially higher than reflected even in this LIS.
North Carolina Families Need More than Double Federal Poverty Level to Live
After calculating the basic budget for these two family types in rural and urban North Carolina, we have found that the average North Carolina family needs substantially more than poverty level to support its basic needs. [See Chart 1: The 2001 North Carolina Living Income Standard] A single parent must earn 188% of FPL in rural areas and 224% in urban. Two parents must have a combined income equal to 202% of FPL in North Carolina's rural counties and 221% in the urban centers. When we calculated a statewide average for both family types we found they need at least 214% of FPL to survive. The North Carolina Living Wage T he Living Income Standard shows that single parents must earn $13.14 per hour in urban North Carolina and $11.00 per hour in rural counties, working full-time for 52 weeks a year, in order to meet the barest needs of their families. [See Chart 2: North Carolina Living Wage] Assuming both parents in a two parent family are working full-time year-round, each of them must earn $9.54 per hour in urban counties and $8.70 in rural, just to get by. The end result is that the statewide average wage required by North Carolina parents in order to support their family is $10.60 per hour. Because of the range in the cost of living for single parents and couples, rural and urban, the average living wage of $10.60 per hour is still not enough for single parents to support themselves and a child in either area of the state. However, a statewide average living wage remains a useful tool that can provide a meaningful measure of the adequacy of wages.
Minimum Wage is Nowhere Near a Living Wage
The minimum wage has remained at $5.15 per hour since 1997, the time of the last increase. Federal and state public officials have chosen not to link the minimum wage to inflation and this has meant that the minimum wage is far out of step with the realities faced by families. Consequently, the North Carolina Living Wage of $10.60 per hour is 206% of the minimum wage.
The Living Income Standard shows that on average statewide, it costs over twice as much to live in North Carolina than indicated by the Federal Poverty Level. Given this higher cost to live and the fact that more North Carolinians are moving to the state's urban areas (which offer jobs but also a higher cost to live) how are families coping? Some did well during the economic boom of the 1990's, but others were struggling to make ends meet even then. Now that the state has suffered a recession and mass layoffs have increased, how many are working but unable to make ends meet?
North Carolina Families Earning Less Than a Living Income To estimate the
number of households living under the LIS, the original Working Hard is
Not Enough relied upon North Carolina Department of Revenue data regarding
household tax filings. This report uses the more precise data of the US Census
Bureau's Current Population Survey (CPS) 2 . Changing data sources means that
our findings from the first and this report cannot be compared. However, the
new data provides more accurate and detailed information and gives us a clearer
picture of how North Carolina families with children are faring. The census
data shows:
1 million families with children live in North Carolina;
59.4% or 618,000 of these families have incomes under the living income standard;
1.6 million individuals, or 35% of the 4 million individuals in families with children, are in families with incomes under the
living income standard; l 46% or 967,000 of all children live under the living income standard.
Working Hard but Getting Nowhere Families earning under the LIS are not sitting by idly. They are working. Sixty percent (60%) of the families with children earning less than a living income possess one or more workers. Of the remaining 40% of families without a worker, a substantial number likely include a person who has worked in the past but in 2001 could not find employment. In that year, for the first time in a decade, the total number of people working in the state declined for the entire year. 3 This reflects the
fact that thousands of workers became discouraged seeking a new job and dropped out of the workforce. Thousands more continued to look for work, but remained unemployed throughout the year. In the latter part of 2001, over 15,000 workers had run out of unemployment insurance benefits before finding work. By December 2001, 253,000 workers were unemployed. Unfortunately, many of the state's economic conditions worsened further during 2002. Unemployment moved up to 6.9% in May and June, the third highest rate in the country, and median income actually dropped. Of those still employed, however, most earning less than a living income are working hard nonetheless. Almost 65% of them worked every week of the year. Most of the remainder worked nearly full-time but for only part of the year. In other words, the low incomes of the families below the living income standard are not caused by unwillingness to work. A comparison of full-year workers earning above the LIS with those earning below it brings out a startling disparity. Though each worked nearly 52 weeks per year and about the same number of hours per week, those earning above LIS averaged almost $46,000 while those below averaged only $17,500. [See Chart 4: Average Hours and Weeks Worked by NC Employees] Seventeen percent of full-year full-time workers did not earn living income wages. As for those employed for less than 50 weeks a year, what is most telling is that during the period when they are employed, they work 35 hours per week on average. They are only employed, however, for 26 weeks a year, on average, exactly six months. Given the rise in unemployment, the loss of manufacturing jobs, the rise in service work and tourism, it could be inferred that some of these individuals would prefer full-time, year-round jobs, if only they could find them. Some of these part-year workers are simply under-employed.
In the last several years, state workers have experienced an erosion of their health care benefits and an increase in their health costs. The state pays roughly 50% less per state employee for health benefits than the average southeastern state. And while the State pays less, employees pay over 50% more for dependent coverage than their southeastern counterparts. For some state employees, recent increases in their share of health costs have exceeded pay raises, resulting in an effective pay cut.
A recent Employee Opinion survey conducted by the Office of State Personnel found that 44% of employees indicated that they could not afford the state health plan rates for family coverage. 7 As health care costs continue to climb, the situation for state employees is likely to worsen.
Recruitment and Retention Problems As wages continue to deteriorate and other benefits of working in the public sector shrink, North Carolina is facing problems recruiting and retaining a competent and qualified workforce. The state also has a growing number of employees who earn less than they need to support a family. In some cases full-time state employees earn so little they qualify for some public assistance benefits. The state can change its policies and reward its workers accordingly, setting the standard for employment in our state, rather than chasing it. Or it can stay the course, losing its quality workforce, as people leave to find work elsewhere, and creating more working poor families. If we choose the latter, the critical services that these workers provide, ensuring the quality of life citizens have come to expect, will deteriorate as well.
Race, gender and age continue to play a significant factor in determining who is trying to make it on less than a living income and who is not. Children and minorities appear to be faring the worst. While children make up only 26% of the general population they are 34% of those trying to survive below the LIS. This is consistent with the finding that families with children are incurring significant expenses not faced by others, such as the need for larger homes and child care. Additionally, young families, where the parents are likely to have less work experience and fewer assets, have some of the highest costs because of child care. Similarly, minorities make up only 33% of the total population but 48% of those with less than a living income. At the same time, Caucasians make up 67% of the general population, but only 53% of those under LIS. [See Chart 5: Minorities Disproportionately Below LIS.] Women also disproportionately fall below LIS compared to their numbers in the general population. Women comprise 50.4% of all North Carolinians but 54% of those below LIS, while a smaller proportion of men are under LIS than are in the general population. [See Chart 6]
At least three principal factors appear to be at work in the failure of 60% of North Carolina families with children to earn a living income. One is the decline in the value of the minimum wage and the resulting decline in real average hourly wages. The second is the steady disappearance of well-paying, low-skill jobs. The result is that 60% of all North Carolina workers have experienced a decline in real income. The third is the increasing tax burden on low-income households. Wages Decline in Value In 1969 a parent could work full-time at minimum wage and earn enough to support his or her spouse and two children at poverty level. Since then Congress has not increased minimum wage to keep up with inflation or even the federal poverty level, and never again has it raised a family of four out of poverty. Today, full-time employment at minimum wage doesn't even raise a family of two above the federal poverty level, much less approach real living costs. [See Chart 7: Decline in real value of minimum wage -2002 dollars] In 1996 and 1997 Congress increased the minimum wage, reversing a small portion of this trend. But the lack of increases since that time means minimum wage will be back to its pre-1996 value by the end of this year. While minimum wage has slept, inflation has not, and so the same work buys less year after year. Real average hourly wages for the bottom 60% of workers dropped steadily from 1979 to 1995, tracking minimum wage. 8 From 1995 until 2001 average hourly wages actually increased in response to the boost to minimum wage and the economic prosperity of the latter 1990's. Even with this slight increase, the bottom 10% of wage earners never saw their average hourly wage rise above 1979 levels. 9 Simultaneously, the proportions of the nation's workforce earning poverty level wages or below increased from 23.7% in 1979 to 26.8% in 1999. 10 Since then, the recession has erased the wage increases gained during the economic boom.
PART III: Why Are so Many Working Families Unable to Earn a Living Income?
The Good Jobs Leave
Changes in international trade policies, shifts in world markets, and cheap labor abroad have resulted in a shift in North Carolina employment. Traditional manufacturing industries that paid good wages for low-skill work are in decline as factories permanently move to other countries. Replacing the manufacturing jobs are service and retail employment. And who are most severely affected? Middle-income workers. Since the late 1970's, job growth has been most concentrated in the service sector and retail trade. In 1975, the service sector accounted for 18% of all employment in the state. 11 By the end of 2000, it made up nearly 37%. Retail trade jobs doubled during this period. By 2008, the service sector is expected to account for 40% of all employment. In contrast, manufacturing employment has shrunk from 33% of employment in 1975 to just 18.5% in 2000. 12 The manufacturing losses have clustered in the traditional manufacturing industries: tobacco, textile and apparel. North Carolina has lost 125,000 jobs in textiles and apparel alone since 1994, or 47% of that workforce. Mass layoffs and plant closings have created tens of thousands of displaced or dislocated workers each year. [See sidebar on Dislocated Workers]
Meanwhile, by 2000 over 1.55 million North Carolinians were employed in services -nearly double the 783,000 in manufacturing. The flood of new lower-paying service jobs during this period masked the loss of good-paying jobs by keeping unemployment low. Manufacturing employment stayed steady until 1995 only because growth in high-technology and other non-traditional, high-skill manufacturing made up for losses in traditional manufacturing. Since 1995, however, new manufacturing jobs have not been able to fill the gap and the number employed in manufacturing dropped from about 864,000 in 1995 to only 701,000 by 2002. 13
Job Market Shifts Mean Workers Lose Income For most workers, the move from manufacturing to new employment has not been an even trade. In short, they lose income and benefits permanently. The main reason is that, compared to the manufacturing jobs they are replacing, most of the fast growing service and retail jobs pay much less and offer fewer or no benefits. Service occupations cover a wide range -from fast food workers and crossing guards to dental assistants and correctional officers. Of the 52 service occupations where wages are known, 32 pay average wages below the living income standard. 14 Average traditional manufacturing wages of $27,350 per year decline dramatically to about $19,400 per year or less, on average in the majority of service occupations. 15 Studies of workers who lost jobs in mass layoffs or plant closings from 1993 to 1995 found that the cost of dislocation was $80,000 over the worker's lifetime. 16 While workers lost some income as work slowed prior to their final layoff and during the first years after layoff while they looked for a new job or moved around for better pay, the majority of earnings loss came after they found new permanent jobs because the pay was significantly less. North Carolina manufacturing workers who lost employment due to mass layoff or a plant closing in 2001 were earning an average of $26,300 a year. 17 Sixty-six percent of them were able to find work within six months, the time period after which most unemployment benefits end. On average, however, they were earning just 54% of their pre-layoff salary in theinewew job. [See Chart 9: Reemployment Rate for All Manufacturing Workers Six Months After Layoff and Chart 10: Pre-Layoff and Post-Layoff Wages for All Manufacturing Workers.]
Low Pay or More Education: The New Job Choice
The effect of the restructuring is that middle-income employment is being replaced with low-wage work or knowledge-based work. A look at the eight fastest growing occupations confirms this. Six of the eight occupations projected to grow the fastest through 2008 pay average wages that are significantly less than the LIS and less than average manufacturing salaries. [See Chart 11: Eight Fastest Growing Occupations] For example, from 1987 to 1998 the number of child care workers shot up 441% but starting salaries in 2001 were just $6 per hour with an average salary of $7.23 per hour or only $14,423 per year. 18 While most of these low-wage, high-growth jobs require little special skill, they also generally offer few benefits, little paid leave, and sometimes, less than full-time employment. For workers, this means less money in their pocket for the same hours worked and less ability to care for their children and themselves. The better paying jobs on the growth list offer salaries higher than the average manufacturing wage, but also require more education -at least a two-year post-secondary degree or more. Given that over 50% of the North Carolina population have a high-school degree or less and fewer than one-third have an associate's degree or more, these jobs are out of reach for the majority. 19 In addition, those with higher education tend to be concentrated in the urban areas of the state -not the places where mass layoffs are occurring. Indeed, in 59 rural counties fewer than 15% of the population has a bachelor's degree. These areas will be unable to attract living wage employment until they can increase the education level of their residents. Likewise, a majority of laid-off workers will remain in low-wage jobs with stagnant or declining incomes unless they can obtain further education.
Recession Accelerates and Uncovers the Job Market Shift T he permanent decline of living-wage, low-skill manufacturing jobs is a long term trend that has generally been hidden behind the boom in low-wage service jobs and high-skill, health and technology jobs. The recession has accelerated this trend and, in so doing, thrown off the cover. North Carolina officially went into recession in late 2000. The following year, the number of people statewide who were out of work due to mass layoffs early doubled, from 22,563 in 2000 to 44,476 in 2001. 20 The fall of the high-technology market during the recession has resulted in the loss of much of the new manufacturing employment that had been replacing traditional manufacturing jobs. While total manufacturing employment declined 2% from 1995 to 2000, it dropped an additional 2.5% in just twelve months from October 2001 to October 2002. 21 The recession has not, however, stopped the growth in the service sector. After suffering an immediate setback following the events of September 11, service sector employment ultimately showed a moderate 1.3% growth between October 2001 and October 2002. Service employment growth leads all other industries and is projected to continue to expand throughout 2008. As noted above, projections for occupation growth still show service jobs being the leaders over the next five years with an annualized growth rate of over 3% for the industry. The end result is that restructuring means long-term changes for individuals, communities and the state. This shift in the economy is squeezing out a large portion of the state's middle-income jobs and replacing them with low-wage employment or high-education employment. The recession did not make this problem, but it has accelerated it to the extent that it can no longer be ignored. And when the recession ends, the fallout from economic restructuring will still be there. Strategies used to address a typical recession will not be enough to address the needs of thousands of displaced workers struggling to get more education or to survive on wages paying half of what they are used to and what they need. To help future generations of workers, North Carolina must improve the education level of its population and the less-than-adequate wages pervasive in a large portion of the new economy.
Unemployment Quick to Grow, Slow to Go: the No-Job Recovery
Since the recession began in late 2000, the rate of unemployment has been inching up from record lows. Just as unemployment seemed to level off, events of September 11, took another swipe at North Carolina workers. Travel, tourism and retail were heavily impacted, resulting in extensive layoffs. North Carolina had averaged a 3.2% unemployment rate in 1999, one of the lowest in the nation, but by May 2002 had the third highest at 6.8%. Higher unemployment has clearly exposed the downsides of economic restructuring and put a greater strain on the systems available to help workers.
Workers are also staying on unemployment benefits longer. Over 125,000 North Carolinians received Temporary Extended Unemployment Compensation (TEUC) in 2002 after exhausting their regular 26 weeks of unemployment benefits. 22 About 38,000 also ran out of 13 weeks of TEUC and remained unemployed at the end of 2002. Another 50,000 to 100,000 workers became so frustrated with their job search that they dropped out of the job market altogether. 23
Some economists contend that 2002 was the first year of economic recovery from the recession. While they are perhaps technically accurate, the United States' economy grew only at a rate that is just two-thirds as great as the average first-year recovery growth rate after the previous three recessions. 24 In North Carolina, unemployment remained well above 6% most of the year and some economists predict continued slow growth in unemployment throughout 2003. 25 In effect, this recovery is a jobless recovery. This is another sign that the current problems of workers are not going to end any time soon without some critical intervention on their behalf.
Tax Policy Making More Poor Families
While economic trends affect worker income, so also do public policies and laws. North Carolina's tax code is one such public policy that is having a negative impact on the low and middle-income workers already suffering from economic restructuring. North Carolina taxes take a much greater share of income from middle-and low-income families than from the wealthy. This inequitable impact exacerbates the problems faced by lower-wage families and serves to increase the umber of families with less than a living income. Furthermore, this problem has gotten worse in the last few years as policymakers have implemented new taxes that impact low-and middle-income earners more than the wealthy and have eliminated certain other taxes that primarily affected the wealthy. In 2002, the poorest fifth of families paid 10.5% of their income in state and local taxes. At the same time, the wealthiest fifth paid more than a full percent less, or around 9%. 26 [See Chart 13: State and Local Taxes Paid as a Percentage of Income by Income Quintile, 1999-2002] In addition, the difference in tax burdens grows substantially when you take into account the federal offset. Taxpayers who itemize their deductions on their federal tax form can deduct their state income and property taxes, offsetting the impact North Carolina taxes have on their income. Most low-and middle-income households do not itemize their federal deductions and so benefit from this offset at a much lesser rate, if at all, than wealthy families. As a result, the top one percent of North Carolina families in 2002 paid 6% in state and local taxes after the federal offset while the bottom fifth still paid 10.5% and the middle fifth of earners paid 9.8%. These figures represent a clear worsening from the 1999 tax system and from years before that. In 1999, the top twenty percent of North Carolina families paid less than 1% less than the bottom twenty. When 1999 and 2002 state and local taxes are compared, the bottom and middle fifths of earners pay more in their state and local taxes today while all other groups are paying less. This shifting of the tax burden has occurred in large part because of an increased reliance on sales and excise taxes and non-tax items such as fees. These taxes and fees are generally the most regressive revenue sources available. They take a larger share of low-and middle-income people's income. For instance, $7 in sales tax on shoes is a larger share of $10,000 income than it is of $100,000. Sales and excise taxes are also regressive because low and middle-income people spend a much larger share of their earnings on goods that are taxed than do the wealthy. State lawmakers have paid some attention to tax fairness in the last several years. To their credit, they removed the very regressive state sales tax on food, raised the minimum income upon which a family pays taxes, and created a new upper-income tax bracket for those earning over $200,000. Unfortunately, the benefit of eliminating the food tax has been wiped out by the increase in the sales tax on other goods. As ongoing state budget deficits increase pressure to raise more revenue, greater attention must be paid to the fairness of new revenue sources. In the last three years, state tax policies have increased the growing income differences between wealthy families and low-and middle-income households. For this reason, the North Carolina tax system has worsened the impact of the recession on those least able to pay more, the bottom 60% of earners.
When two-thirds of families earn less than a living income it has a negative impact on the individual family members as well as on their communities and the state as a whole. Even during the economic boom of the 1990's, hundreds of thousands of North Carolina households were struggling. Now that a recession has hit, even more families have been devastated by job losses and low wages. Those losing jobs through mass layoff often see a permanent reduction in their wages. Low-wage workers remaining in the workforce have seen an erosion of their income. Both families face hard choices such as whether to pay for rent or car repairs, for shoes or prescription medication. This is reflected in the data; foreclosures, hunger and requests for emergency shelter are all up. Lack of adequate income also means increased family stress and diminished health, well-being and growth potential for the parents as well as the children. The impact is also much broader than upon the individual families. The recession, public policies that overtax the poor and the shift in the economy also impact communities. Entire rural communities struggle to address mass layoffs and permanent plant closings. Some counties have seen their unemployment quadruple in just two years. Unemployed workers spend less and then local retail workers lose their jobs. As more families struggle to keep up and more communities falter with job loss, the gaps expand between the rich and poor, the educated and uneducated and between rural and urban counties.
Families Do Not Have Enough Food to Eat
The impact on families of inadequate income is often hidden from public view but painfully experienced by family members in the form of hunger. Over half-a-million North Carolina adults and more than a quarter-million North Carolina children, on average, did not have access to enough food from 1998 to 2000. 35 These numbers have been increasing in the last few years. In 1996-1998, an average of 9.8 percent of North Carolina households were "food insecure" or unable to provide enough food for all family members, increasing to 11.1 percent on average in 1999-2001. 36 Food insecurity has forced more individuals and families with children to use emergency food assistance. The Charlotte Loaves and Fishes program saw a 22 percent increase in demand for emergency food from 2000 to 2001. Nearly all of those receiving assistance were members of families with children. 37 While demand for emergency food has clearly increased more since the recession began, it had, in fact, already been increasing in three-fourths of 25 American cities surveyed in each of the last sixteen years. 38 Food insecurity has an immediate and significant impact on the health and well-being of family members -especially children. Several national and regional studies have found that children experiencing food-insufficiency or hunger had more colds, headaches, ear infections and other health problems than non-hungry children. 39 These children were more likely to be anemic, to be hospitalized, to experience anxiety, and to have difficulty getting along with other children. 40 They also had lower test scores, were more likely to repeat a grade and showed a "diminished capacity to learn" over the course of a school year compared to non-hungry children. In other words, food-insecurity has a serious impact on the health, psychosocial behavior and learning ability of children.
Families Cannot Afford Safe Housing
Another result of inadequate income is lack of access to a safe, affordable home. Unstable housing presents families with myriad problems, not least of which is that parents may not be able to adequately bathe and dress for employment and children may not be able to attend the same school for a complete school-year. Inadequate housing also has been linked to increased incidence of asthma, injuries and lead poisoning in children.
As a result of inadequate income to afford decent housing, families live with other relatives and friends, give up other necessities to pay for rent, or stay in unsafe dwellings. Overall, one-fifth of North Carolina households either lack complete plumbing, are overcrowded or pay more than 30% of their income for housing costs (including utilities). 41 One-fourth of all North Carolina families with children suffer one or more of these housing problems. 42 From 1990 to 2000, there was a 163% increase in "highly crowded households" in North Carolina alone. 43 As the number of families without a living wage increases, so do the number of families seeking emergency shelter. Even before the recession, children were the fastest growing population in North Carolina emergency homeless shelters. The number of children needing emergency shelter grew 27% between 1995 and 1996; from 1996 to 1997 the shelters saw an additional 29% increase in their child population. 44 A recent study of homelessness in Charlotte conservatively estimates that over 9,000 individuals slept at a Charlotte emergency shelter in 2000, more than double the number in 1996. 45 In addition, "43% of those staying in shelters in 2000 were members of a homeless family with children." 46 Statewide data reveals that there was a 79% increase in the unduplicated number of people served in emergency shelters receiving federal assistance between 1997-2000. 47
More Families Are Uninsured L ack of health insurance is a growing problem as health insurance costs rise and fewer employers provide it. In 1999-2000, thirty-nine percent of North Carolina businesses did not offer health insurance. 48 National data indicate this trend is continuing in 2001 and 2002, and that when health insurance is offered, more employers are passing along increased costs to their workers. 49 This has resulted in a growing number of low-wage workers who cannot afford to pay for their employer's health plan. As a result, 725,765 low-income North Carolina children and adults under age 65 do not have health insurance and seventy-five percent of uninsured North Carolinians are members of a family containing at least one person working full-time. 50 Lack of continuous health insurance coverage results in problems for families in obtaining prescriptions, paying medical bills, and maintaining a continuous relationship with a physician. 51 This in turn, impedes their use of preventive and primary care. Again, when an uninsured low-income family is faced with medical or prescription costs, they must make the impossible choices between health care and other necessities like rent or food. Each choice poses a risk to family members' health, productivity and future and enhances the likelihood of a larger and more expensive health emergency.
Medicaid is available to help the lowest income children and families, and Health Choice covers children in families above Medicaid income eligibility but still earning below 200% of FPL. But because of very low income eligibility requirements for adults, many low-income parents do not get any health insurance assistance. Thirty-two percent (32%) or 107,000 of North Carolina's mothers in low-income families do not have health insurance. 52 Eighty-five percent (85%) of these low-income uninsured mothers live in working families. Most of these mothers are uninsured because they lack access to affordable employer-based coverage and also are ineligible for Medicaid. 53 In fact, a mother with two children earning only 65% of federal poverty level for three is income-ineligible for North Carolina's Medicaid program. The end result is that many of North Carolina's working parents are uninsured because they cannot get affordable health insurance and do not qualify for Medicaid.
For decades it has been public policy to help workers when they are unemployed through no fault of their own -- especially during recession. A variety of federal and state funded programs work to soften, though not eliminate, the blow that unemployment delivers to family finances. These programs also provide assistance to local economies most in need. When hundreds of laid-off workers receive unemployment insurance benefits, for instance, they are able to continue spending and the local business economy may avoid being dragged down also. 65
HELPING FAMILIES
One of the clearest signs of recession has been the huge increase in the unemployment rate. Statewide, unemployment figures doubled in just over a year. Some individual counties have seen their unemployment increase 400% since 1999. 66 When they are employed, workers and their employers contribute to the unemployment insurance trust fund, which then provides the worker with cash assistance during times of unemployment. North Carolina unemployed workers are usually eligible for up to 26 weeks of Unemployment Insurance benefits at about half of their previous salary. Nearly 430,000 individuals received one or more unemployment checks in 2001 with average payments of about $237 per week. 67
Some low-income families without access to health insurance can also obtain health insurance for their children through the Medicaid and Health Choice programs. Very poor unemployed parents may also qualify for Medicaid. If the family's income drops below about 130% of poverty level it may be eligible to receive food stamps. While the combination of these benefits will not amount to a living income, these programs do help families to get by until they can obtain new employment.
HELPING THE LOCAL ECONOMY
In addition to helping families, these programs also help the community by providing a quick infusion of money into the local economy. As workers lose their jobs through mass lay-off or due to recession, they obviously have less to spend at the grocery, in other local stores, on housing and for services. It can be devastating to a local community --especially in rural areas where a substantial portion of the population may be laid off when a plant closes. Unemployment insurance benefits and food stamp assistance are disbursed to eligible families relatively quickly after application is made, and then are usually spent rapidly by the families to meet immediate needs. This in turn slows the dip in spending, buoys the local economy and maintains jobs in other sectors that otherwise may have been lost. In other words, there is a multiplier effect to the benefit received from a family spending food stamps. The U. S. Department of Agriculture, which administers the food stamp program, recently found that every $5 spent on food stamps triggers about $9.20 of economic activity such as farm production, food processing, sales and shipping. 68 Also, because these programs are only available to either low-income persons or workers who are unemployed through no fault of their own, their benefits go into the community when and where there is greatest need. For example, total North Carolina unemployment insurance payouts doubled in 2001 as the recession hit, to $944 million and have gone up still further in 2002 to $1.2 billion. 69 Further study by the Employment Security Commission showed that "unemployment insurance payouts are providing greater assistance to counties that have suffered most from the recession." 70 In other words, as the recession has worsened, local economies most in need have received the greatest benefit of the distribution of unemployment insurance benefits. The same is true of food stamps. Nearly $425 million in federal food stamp benefits went directly to North Carolina grocery stores in federal fiscal year 2001, increasing to $536 million in FY 2002 as unemployment increased.
PROGRAMS COULD HELP MORE
While the unemployment insurance program is definitely helping to counter the impact of the recession, it is still not available to all who need it. Part-time workers and those earning very low wages may find themselves ineligible for unemployment insurance benefits when they are out of work. In addition, cuts made to employer contributions during the boom years have meant that the unemployment insurance trust fund has been emptied now that recession has hit and the need has grown.
Other programs simply are not reaching all those who are eligible. Participation in Medicaid and the food stamp program increased following the start of the recession. However, estimates indicate that 53% of North Carolina's uninsured children are eligible for Medicaid or Health Choice but are not enrolled. 71 Only 52% of eligible North Carolina families collect food stamps, the 10th lowest participation rate of the fifty states. 72 This is a drop from the already low 63% in 1994. Low participation means not only that families suffer needlessly, but also that the state is foregoing federal moneys that could be coming to struggling local economies through the grocery store. More public education and outreach, full funding for Health Choice, as well as simplification of the food stamp and Medicaid application process, could help the state maximize use of these programs and further buoy the economy. Other programs that historically helped unemployed or underemployed workers during economic downturn, such as Work First, North Carolina's primary cash assistance program for low-income families with children, no longer do so. During the debate over welfare reform, Work First was completely revised to emphasize helping families to find and keep employment. With time limits, work requirements and a de-emphasis on training, Work First is no longer designed to target families suffering from unemployment, and instead is "pro-cyclical" or focused on helping families with a job. This has been clearly reflected in the fact that the Work First caseload, which dropped over 60% after the implementation of reforms, has not increased in spite of the recession and increased unemployment. 73
North Carolina's child care subsidy program is doing an excellent job in helping low-income working parents afford and find good quality, safe child care. This program, like Work First, is pro-cyclical however, and currently does not have the resources to also provide more than a few weeks of subsidies to parents while they are unemployed, or if they are in long term training or higher education. While the program could be expanded to meet the needs of parents in training or between jobs, this would require additional funding.
The bottom line is that federal, state and local governments work together to provide programs intended to help families while they are unemployed. This assistance in turn, helps the local economies that need it most by pumping federal money into local business. Currently, however, North Carolina is not accessing all it could from these programs. Lack of outreach, inadequate funding and obsolete eligibility restrictions are preventing all those in need from obtaining assistance and this in turn lowers the infusion of dollars into local communities struggling with economic decline.
Failure in the Corporate Marketplace: Inadequate Consumer Protections
One of the most pernicious aspects of poverty in modern North Carolina is the way in which income and wealth disparities are magnified and exaggerated by exorbitant consumer debt and inadequate consumer protection laws. While low wages, regressive tax patterns and inadequate state services are each a primary cause of poverty, failed consumer financial transactions are both a primary cause and a primary symptom. Without affordable necessities (such as homes, cars, utilities and appliances), fair and affordable credit to finance purchases, and fair consumer protection laws when deals go sour, low-income families are much harder pressed to escape the poverty treadmill. For millions of North Carolinians, the inability to negotiate the consumer marketplace is thus a key roadblock to economic self-sufficiency. Many who actually earn decent wages and who might, for instance, be able to save toward homeownership, are ultimately denied a living income because they are unsuccessful consumers.
The situation today The notion that the "poor pay more" is, of course, not a new concept. Sellers and creditors have long relied upon "market forces" as grounds for charging higher prices to lower-end customers. Similarly, most Americans are well aware that unsophisticated or inattentive consumers are at risk of finding themselves trapped into bad deals when they enter into large consumer transactions. What may come as a surprise to those well schooled in the virtues of carefully reading Consumer Reports and refinancing their home loans at microscopic interest rates, however, is the fact that the overall situation in 2003 is getting worse. Recent data indicate that failure in the consumer market place is a reality for a growing number of North Carolinians. Moreover, many of these trends began before the current recession. Home foreclosures are a prime example. In 2002, there were 35,599 foreclosure proceedings in state courts. This represents a 27% increase over the 25,869 filed in 2001 and a 133% increase over the 15,295 filed in 1998. While some of the more recent increase can logically be attributed to the recession, a look at the chart below reveals that the upward trend had commenced in the late 1990's at the height of an economic boom. Bankruptcy numbers show a similar, if not so dramatic, pattern -much of which pre-dates the recession.
Other recent indicators of widespread consumer failure include the demise of manufactured home lending by industry giant, Conseco (which was buffeted by unprecedented numbers of manufactured home repossessions -many of which were in North Carolina); explosive growth in consumer debt; and the use of so-called "payday lending" products that prey upon consumer financial emergencies.
Why so much failure? While some of the consumer failure signified by these numbers can be attributed to general hard times, much must also be attributed to inadequate consumer protections.
Examples include: Despite North Carolina's adoption of groundbreaking, anti-predatory mortgage lending legislation in 1999, many of the record number of foreclosures in recent years have taken place on loans that pre-date the law. Many homeowners that might have attacked predatory provisions in their pre-1999 mortgages have been prohibited from doing so by virtue of North Carolina's restrictive foreclosure law. l Purchasers of manufactured homes (the affordable housing of choice in many communities around the state) must still contend with a sales model that bears close resemblance to that found on a 1950's used car lot. Homes bear no sticker price, deposits are not escrowed, and loans are typically offered at rates of two to three times those of a conventional mortgage.
The explosion in payday lending (also known as deferred deposit check cashing) is less a function of consumer need -it first exploded during the late-90's boom -than skillful exploitation of consumer vulnerability. More than 90% of these short-term, high cost loans are "treadmill transactions" taken out by consumers who are simply seeking to delay the reckoning day for a previous loan. In these areas and many others, inadequate consumer protections can help to swell the numbers of North Carolinians failing to earn a living income.
Significant Sectors of the State Are Losing Ground
Not only are individual families suffering, but whole communities are falling apart due to job loss and the resulting drop in local economic activity. Rural areas of the state and most middle and low-income families did not benefit as much from the economic boom and are suffering more from the economic downturn. The gap between North Carolina's rich and poor families and urban and rural counties has grown extensively. The small gains that were made in the later 1990's are being reversed by the huge detrimental impact of the recession on these vulnerable groups.
Income Inequality Grows: the Very Rich Get Richer, Everyone Else Loses Income
The gap between rich and poor North Carolina families has been growing since the 1970's. Starting in the 1980's, middle-income families also began falling behind. In short, poor and middle-income families have not seen the significant increases in real income that have accrued to the rich. In fact, wages for many low-income families have not kept pace with inflation. Since the late 1980's, the richest fifth of North Carolina families have seen steady, strong growth in their incomes equaling nearly 23% or $24,000 more per year. 54
Middle-income families saw less than half that growth with a modest 11% increase of about $4,600. The poorest fifth of families, on the other hand, saw no income growth during most of that time, and gained only 2.4% or just $300 by the end of the 1990's economic boom. [See Chart 15: Income Change for NC Families and also Appendix C] The result is that by the late 1990's the richest twenty percent of North Carolina families had average incomes ten times larger than the poorest twenty percent. 55 While the incomes of most families rise slowly, prices continue to grow in concert with wealthier families' incomes. Low-wage workers cannot pay the higher costs because their salaries have not increased proportionally. This has been especially true with housing. While recession may eventually bring down some prices, 2001 fair market rents still showed significant growth of over 17% in the twelve most populated counties of North Carolina, in spite of a drop in median income. This pattern is rendered even more troubling by recent national census data indicating that nearly all of the gains made by the bottom 60% of American households during the economic boom were lost during just the first year of the recession. 56 In the first year of recession the poorest 20% of American households lost twice as much as they had gained in five years of a booming economy. [See Chart 16: Average American Household Income Growth from 1995 to 2002 compared to 2000 to 2001] The next fifth of households also lost more than they had gained during the boom and middle-income families have lost about equal to their gains. Consequently, middle and lower income families did not benefit as much from the years of economic expansion and are suffering more from the recession.
Displaced Workers See Permanent Income Loss
No group is more vulnerable than the state's displaced workers. Researchers estimate that losing employment due to permanent plant closing or mass layoff costs a worker about $80,000 over the worker's lifetime. 57 The losses come in three phases. First, workers lose income from temporary layoffs leading up to the permanent mass layoff. Second, in the 2 ½ years following job loss, workers lose significant income while on unemployment insurance which pays about half of their former average weekly salary. In this phase they may also have periods of being employed at jobs paying much lower wages. The majority of income loss occurs, however, 2½ years after their dislocation until retirement. Studies have found that American dislocated workers historically see a 25% permanent loss in wages compared to similar workers not dislocated. Almost all of the loss occurs due to reduced wages rather than reduced employment. These national studies appear to be proving true in North Carolina as well. Recent state studies indicate that six months after dislocation, the majority of North Carolina manufacturing workers are returning to work but only at about half of their previous salary. 58
Given the permanent restructuring of the state's economy and the low education level of most North Carolina dislocated workers, this large loss of income seems likely to continue for the remainder of their careers.
The Urban-Rural Divide Becomes a Chasm
For many years, rural counties have been hit harder by economic restructuring than the urban areas. This is because rural counties have been more dependent upon traditional manufacturing, which is in the greatest decline. 59 In addition, rural counties are least prepared for new knowledge-based industries. New job growth has instead concentrated in urban counties, where universities, a better educated workforce and both car and information highways provide important infrastructure for high tech industries. In 2001 alone, 69% of North Carolina's textile layoffs occurred in rural counties. 60 In contrast, from 1980 to 2000 job growth in the Raleigh-Durham-Chapel Hill area was 122%, the third highest in the Southeast. The Charlotte area saw 81% growth in the same period. 61 No other North Carolina counties come close to this level of growth, and many rural counties have experienced overall job loss. It's no surprise then, that rural counties have higher unemployment than urban counties. For the last two years, ten or more North Carolina counties each month have had an unemployment rate of ten percent or greater and all are rural. 62 At the same time, the largest urban counties continue to experience single digit unemployment at or below six percent. Rural workers are also earning less. For example the average rural manufacturing wage is $29,576, but increases to $44,718 in urban areas. Rural workers also tend to have jobs in lower-paying sectors. Nearly 23% of the rural population works "production manufacturing" compared to only 15% of the urban population, but this reverses regarding professional occupations that pay more. Only 26% of the rural population can be categorized as professionals as compared to over 36% of workers in urban counties. Ultimately, the faster rate of job loss and plant closings in the rural counties also means that these areas are losing a greater portion of their tax base as the economy shifts and contracts. While the drop in revenue and economic activity is a statewide problem, the impact is more devastating in rural communities. This is because many rural communities have been dependent solely upon traditional manufacturing and have competed through low property costs and cheap labor. These methods of competition no longer work in an era of free trade in which more poverty-wage countries are learning how to create and support similar plants. In some cases, the reduction in local revenues resulting from a shrinking tax base and reduced demand for services like water and sewer can leave a county strapped to provide even the most basic necessities to its residents. Rural North Carolinians are also less prepared for the new economy jobs that pay a living wage. Compared to their urban counterparts, rural North Carolinians are much more likely to have less than a high school diploma and much less likely to have a college degree. 63 Rural North Carolina households are also less likely to own a computer or have access to the Internet. All of this translates into problems for rural counties and their residents. All of North Carolina's counties with persistently high poverty rates are rural. Fewer rural residents have health insurance or telephone service. Rural housing is more affordable than urban, but a smaller percentage of rural dwellers own their home and three times as many live in mobile homes. 64 Rural counties are falling further behind the urban areas and are unprepared to shift to the new knowledge economy. They are not prepared to compete in new ways. They have neither the infrastructure nor the resources to address their problems, without significant assistance from the state.
Two North Carolinas or One?
As North Carolina moves foursquare into the 21st century, it is clear to all that myriad challenges lie ahead. The demise of traditional manufacturing industries and agricultural practices, the higher skill-level or lower wages of many new jobs, the struggle for public and higher education to keep up, an aging and increasingly diverse population and an increasingly connected and competitive world economy are but a sample of the issues that confront state leaders. Many of these issues promise to transform North Carolina, for better or worse, into a place that would be unrecognizable to the leaders who guided the state at the turn of the last century. And still, as imposing and potentially transformative as each of these critical issues will be, none poses such a direct threat to the very fabric of North Carolina as the economic crisis detailed in this report. Throughout much of the previous century, North Carolina's history is one of slow, but inexorable movement toward a more economically equitable society. This trend accelerated noticeably during the middle decades of the 20th century as North Carolina built a well-earned reputation for progressive political and economic change that was designed to enrich and empower all its inhabitants. Today, much of the hard won progress appears to be in jeopardy. A lethal combination that features a decline in key economic sectors and a regressive drift in state and national fiscal policies has worked to erode much of the success of the past century. Lost manufacturing jobs and an increasingly counterproductive set of government responses in such areas as tax fairness, wages, education, consumer protection and health care have conspired to shrink the state's middle class and to exacerbate the yawning gap between the state's "haves" and "have nots." Without strong and decisive action to reverse these trends, North Carolina runs a real risk of turning a temporary setback into an long term decline that will take many decades to overcome.
What comes next? The findings in this report are likely to provoke a number of different responses. Some critics, of course, will question the very premises of the report and deny the magnitude of the problem. Others will fall back on stale aphorisms such as "the poor will always be with us" or rely upon anecdotes about shiftless or unproductive individuals. For some readers on the other side of the fence, the notion that almost 60% of North Carolina families with children fail to bring home a living income will be a shocking outrage that begs a radical call to political arms. Still others will find the numbers almost too overwhelming to comprehend -a dumbfounding discovery that stimulates only paralysis and despair. A better and more productive response on all parts would be a period of sober and honest self-examination followed by a renewed commitment to fairness and progressive change. If North Carolina is to address the stark data that are laid bare in this report, it is imperative that all North Carolinians take an honest look in the mirror to see where they fit into the state jigsaw puzzle. It is essential that state leaders come to terms with what our state has become and what is at risk in the decades ahead. If North Carolina is to recapture the momentum that for so long propelled it toward the construction of an increasingly stable and equitable middle-class society, there must be a renewed and broad-based commitment to the notion that all North Carolinians are "in this together." The long list of specific recommendations contained in this report amount to a detailed prescription for healing many of North Carolina's most critical ailments. Though an admittedly ambitious -even daunting -list, none of these important policy changes will be so critical as the initial change of mindset that must first occur. Like a human patient that must "want to get better," North Carolina cannot hope to construct the fair and equitable society that it is capable of building unless it first grasps and acknowledges what is healthy and what is not in the present environment. With such recognition and insight, the policy objectives outlined herein will be a strong beginning.
While the problems of low-wages, job loss, and outdated, unfair tax policies can seem insurmountable, clear solutions are available that North Carolina policymakers, employers and government officers can pursue immediately. The state's political, social and economic woes did not arise overnight and will not be resolved quickly. The recommendations that follow provide a blueprint of policy changes that could usher in a new era for North Carolina.
IMPROVE WAGES
1. Gradually Eliminate Pay Grades Offering Less Than a Living Wage
The legislature should increase the pay of all state workers to the living income standard, beginning with elimination of pay grades 50 -54 at a modest cost of $7. 6 million. State contractors should also be required to pay a living wage to their employees, and ensure that living wages are paid to the employees of subcontractors. [See Part I]
2. Provide State Employees With Significant Flat Annual Pay Raises
The legislature should provide flat annual pay increases of $1500 to all state employees to begin reversing their loss in wages due to inflation and increased health care costs. The flat pay increase, providing a larger percentage increase to the lowest-income workers, rewards all work equally, helps to minimize race and gender pay inequities, benefits employees most in need. [See Part II]
3. Pass Local Living Wage Ordinances
In 27 states, 99 local government entities have active living wage ordinances requiring their employees be paid a living wage with an overall average of $9.05 per hour with benefits. [See Appendix D] Forty-six have passed since 2000 and the beginning of the recession. North Carolina local governments should pay all of their employees at least $10.60 per hour with benefits. Contractors with local governments should also be required to pay a living wage and to ensure that living wages are paid to employees of subcontractors. [See Parts I and II]
4. Gradually Raise The State Minimum Wage To $10.60 Per Hour
The current federal and state minimum wage is only $5. 15 per hour, far below any living income standard and even below the outdated federal poverty level. [See Part I]
PREPARE AND RETRAIN THE STATE'S WORKFORCE
5. Assist Dislocated Workers
a. Require More Employers to Report Mass Layoffs and Increase Employer Compliance. Under federal law, an employer must report to the state a layoff of 50 or more employees so that agencies can respond to the needs of the dislocated workers. But this requirement does not apply if the layoff affects less than one-third of the employer's labor force; consequently, dislocated employees in mass layoff from a large company may not get assistance. All employers do not report as required, moreover, and there is no method to ensure compliance. The legislature should pass legislation to supplement the federal law by requiring employers to report the layoff of 25 or more employees regardless of their total work force. The state legislation should be designed to ensure compliance. [See Parts III and IV]
b. Enhance and Publicize Services Available to Dislocated Workers. Funding should be provided to increase and publicize state services to dislocated workers and also to fund worker liaison committees for each mass-layoff site made up of laid-off workers in the region. The committee would be trained to provide information about financial services, training and other programs available. The committee should be available to provide ongoing assistance and information as long as needed. Additional funding should be allocated for staff to assist these local committees and address the increase in mass layoffs.
6. Improve and Coordinate Workforce Development Efforts
Coordinate North Carolina's seven agencies and forty programs for training workers in a single and efficient plan with clear goals. Include workers, employers, trainers, non-profit leaders, and academics in the planning process for proper understanding of economic trends, workforce and employer realities and best training practices.
7. Provide Funding to Ensure North Carolina's Public Education System Prepares All Children for Success in the Job Market
a. Provide Adequate Funding for All Programs Targeted at Closing the Achievement Gap. This should be done to ensure that all children receive their constitutional entitlement to a sound basic education. Safeguards should be provided to ensure such funding is spent on programs directly impacting student achievement. [See Part III]
b. Increase Funding for Limited English Proficient (LEP) Children and Children in Special Education. According to the Department of Public Instruction, there are over 150 languages spoken by North Carolina's public school students, with Spanish speakers (some 67, 000 in 2001-02) comprising the largest and fastest growing group. To address this growing need, the LEP funding must be increased by $1,000 per pupil to ensure that Limited English Proficiency students have equal access to receiving a sound basic education. Additional funding is also needed to meet the needs of children in special education so that per pupil funding equals 2.3 times the funding for children without special needs c. Reform The School Finance Funding Formula To Ensure Access To A Sound Basic Education For All Children. To equalize school funding between poor and prosperous counties, a Professional Judgment Model of practices, policies, and curricula necessary for a sound basic education should be used to cost out the per pupil funding for such an education. A funding formula should then be devised that will guarantee every school district adequate funding for the educational needs of its students. This school finance model, often referred to as the adequacy model, is not based on a quantitative allotment such as Average Daily Membership, but on a needs assessment that factors in the particular demographics of the school district.
INCREASE TAX FAIRNESS
8. Implement A State Earned Income Tax Credit (EITC)
The federal EITC is available to low-income workers with families to offset their federal taxes and reward them for work. This credit raises more families out of poverty than any other federal program. North Carolina policy makers should establish a state EITC to offset state and local taxes and reduce the current inequities in the state tax system. The state credit should be refundable and set at 10% of the federal credit (thereby reducing administrative costs). [See Part III]
9. Replace Regressive Taxes with Fairer Revenue Sources
Increased reliance on fees, the sales tax and excise taxes has made North Carolina's tax system more regressive as well as outdated. Progressive tax options that are growing would ensure adequate revenue and increased fairness; these include single corporate filing, lowering the sales tax and expanding it to services, and closing of corporate loopholes. [See Part III]
10. Allow Business Tax Incentives Only for the Creation Of Jobs That Pay A Living Wage And Evaluate The Effectiveness Of Incentive Programs
Employers receiving incentives should be required to pay wages equaling the LIS. A first step would require an employer to pay at least 10% more than the average manufacturing wage for the county or region, rather than only 10% above the average weekly wage as at present. Details of incentive agreements and the jobs that result from them must be shared with the public and evaluated in order to determine their effectiveness.
ENSURE ACCESS TO BASIC NECESSITIES
11. Improve North Carolina's Unemployment Insurance System [See Parts III and IV]
a. Shore Up the Unemployment Insurance Trust. North Carolina has the fifth lowest unemployment insurance tax rate in the country. The state's trust fund is depleted. State policy should ensure that the Trust Fund is properly funded. b. Improve Coverage of Unemployment Insurance Benefits. i) Remove the Initial "Waiting Week" Before Unemployed Workers Can Collect Benefits. This has been done for workers unemployed due to natural disaster, but should be expanded to all workers. ii) Provide Help to Part-Time Workers. Currently part-time workers who lose their jobs cannot qualify for unemployment benefits unless they seek full-time work. North Carolina should ease this requirement and allow part-time workers to seek part-time work. iii) Clarify Family Violence Provisions. Clarify that state law allows workers to prove they left their job in order to escape domestic violence through a variety of evidence, not just through submission of a civil protective order. iv) Alleviate Family Hardships. Allow workers to receive unemployment benefits when they must leave their job due to health conditions of a minor child or an aged or disabled parent.
12. Ensure Families Have Access To Health Insurance [See Part IV]
a. Maintain Current Medicaid Coverage and Provide Coverage to Uninsured Working Parents Up To 200% Of Federal Poverty Level. The state should not increase the number of uninsured by reducing Medicaid coverage. By expanding Medicaid to uninsured parents earning up to 200% of federal poverty level (which federal law requires for determining eligibility) North Carolina will provide affordable health care to those without it and at the same time will draw down 63 federal dollars for every 37 state dollars spent.
b. Fully Fund the North Carolina Health Choice Program For Children. Health Choice provides coverage to uninsured children whose family's income is too high for Medicaid but under 200% of FPL. In the past, qualified children have been placed on a waiting list because of inadequate state funding. The legislature should allocate funding sufficient to ensure that no qualified child is denied access to Health Choice coverage.
13. Update Public Assistance Programs To Better Serve Working Families And Dislocated Workers [See Part IV]
a. Automate And Simplify The Application Process For Public Assistance Programs. Investing in technology to overcome current technical limitations would permit working parents to apply for Medicaid, Work First, and Food Stamp assistance through a single application during working and non-working hours, avoiding the present need to fill out long, repetitive forms that must be completed during working hours.
b. Provide Work First and Child Care Assistance To Parents In Job Training and Higher Education in Preparation for Higher-Wage Employment. Additional funding should be provided to the child care subsidy program and changes made as needed to Work First in order to provide this assistance for a reasonable duration to complete educational goals.
c. Raise Work First Benefit Levels And Eligibility Criteria To The Living Income Standard. Currently, families earning less than one-quarter of the living income standard (less than half of federal poverty level) are ineligible for Work First cash assistance. These benefits pay about one-eighth of the living income standard and have not been increased for over a decade. Cash assistance should be available to workers in training or education programs at a level that makes education possible.
14. Ensure Access To High Quality, Affordable Child Care [See Part I]
a. Fully Fund North Carolina's Child Care Subsidy Program at Current Market Rates Based on Quality Levels and Age Groupings. About 11, 000 eligible children are waiting to receive a child care subsidy so that they can attend safe and appropriate child care facilities while their parents are at work.
b. Fully Fund Smart Start and More at Four. Smart Start addresses the individual needs of each county to provide quality, safe child care, parent education, health screenings, subsidies and education alternatives for families. Recent evaluations indicate that Smart Start efforts are improving the quality of child care and the readiness of young children for public school. More at Four provides intensive help for pre-school age children who are at risk of not doing well in public school.
15. Increase The Supply Of Affordable, Safe Housing [See Part I and IV]
a. Allocate $50 Million Annually To The N. C. Housing Trust Fund. The NC Housing Trust Fund is the only source of state housing funding that addresses the full range of housing needs currently facing North Carolina families. Rent is the highest budget item for many families. The Trust Fund's investment addresses this issue and also creates jobs, builds the tax base, leverages private investment and rebuilds communities throughout North Carolina.
b. Maximize The Allocation Of The Remaining Hurricane Floyd Flood Relief Funds For Low-Income Families --Particularly Renters. Eastern counties affected by the flood immediately expended funds available to replace rental housing but have not spent all moneys available for other uses. This remainder should be used to increase the supply of affordable rental housing.
PROTECT CONSUMERS FROM ABUSIVE PRACTICES
16. Adopt New Protections For Consumers Who Purchase Or Own Manufactured Homes [See Part IV]
Legislation under consideration in the 2003 General Assembly would: 1) make it easier for manufactured homes to be classified as real property -thus facilitating more affordable loans and building wealth; 2) clarify the consumer's three day right to rescind a purchase; and 3) protect consumers from abuse by mandating that dealers place sticker prices on homes for sale, hold customer deposits in escrow.
17. Reform Or Abolish Payday Lending And All Other Forms Of Predatory Lending [See Part IV]
In 2001, North Carolina lawmakers ended a four-year experiment with legalized deferred-deposit check cashing -also known as "payday lending." Since the demise of the payday lending law, however, many such lenders have stayed in business by affiliating with out of state banks and claiming to be "facilitators" of interstate loans that they allege are beyond the power of states to regulate. The end result of this practice is that thousands of lower-income North Carolinians continue to be trapped in a vicious cycle of back-to-back-to-back loans that generate effective annual interest rates in excess of 400%. Legislation before the 2003 General Assembly seeks to reauthorize payday lending under vastly different and more consumer-friendly terms.
18. Expand Foreclosure Protections [See Part IV]
In 1999, North Carolina adopted groundbreaking, anti-predatory mortgage lending legislation designed to protect vulnerable consumers from disreputable lenders who would "skim" home equity through high-cost home loans. Unfortunately, many consumers continue to face foreclosure and loss of their homes as the result of loans initiated prior to the effective date of the 1999 law. This has contributed to a recent explosion in mortgage foreclosures throughout the state. North Carolina should adopt legislation that gives homeowners expanded rights to raise such legitimate defenses in foreclosure proceedings.
Endnotes
Part I Calculating Federal Poverty Level 1 This sidebar is based upon: Gordon Fisher, The Development and History of the U. S. Poverty Thresholds, Newsletter of the Government Statistics Section and the Social Statistics Section of the American Statistical Association, Winter 1997.
Part II
2 2002 March CPS Census data was used for this report. This data is specific to the calendar year 2001.
3 Employment Security Commission of North Carolina. A worker is considered to have dropped out of the workforce when they no longer look for employment or otherwise indicate they are no longer seeking to be employed. See Chapters III and IV for more information about North Carolina unemployment rate and insurance.
Working in the Public Sector Doesn't Pay
4 Office of State Personnel, December 2002. Other public employees not contained in this number include university faculty, the majority of community college workers, teachers, and those in the judicial system.
5 Occupations within the various departments and organizations are classified according to pay grade. When they are hired, employees are assigned to one of 47 pay grades numbered 50-96. Where an employee falls on this scale is based upon a variety of factors, including the job's classification, and the individual's experience, performance, tenure and skill level.
6 State of North Carolina Compensation and Benefits Report, 2003. Office of State Personnel.
7 State of North Carolina Compensation and Benefits Report, 2003. Office of State Personnel.
Part III
8 Lawrence Mishel, Jared Bernstein, and Heather Boushey, The State of Working America 2002-2003, Economic Policy Institute, 2002, p. 128.
9 Ibid. Refers to real average hourly wages for all workers in the bottom 10th percentile in 2001 dollars. These workers earned $6.68 per hour on average in 1979 (in constant 2001 dollars) but this had dropped to only $5.84 by 1995. While the lowest 10% of wage-earners saw some increase in their real average hourly wage after 1995, they still ended the decade earning $6.48 per hour on average in 2000, twenty cents per hour less than they earned in 1979.
10 Economic Policy Institute, 2002.
11 Sajid Hussain, Arif Mahmood, Mansoor Choudry, "North Carolina's Changing Employment Pattern during 1975-2000 and Outlook through 2008," Insight, Employment Security Commission of North Carolina, September 2002, p. 6.
12 Ibid.
13 Employment Security Commission of North Carolina.
14 Employment Security Commission of North Carolina.
15 Employment Security Commission of North Carolina. Refers to 2001 wages.
16 "Worker Displacement During the Mid-1990s", CPS Publications, October 25, 1996.
17 Chris Estes, William Schweke and Sara Lawrence, Dislocated Workers In North Carolina: Aiding their Transition to Good Jobs, North Carolina Justice and Community Development Center, 2002.
18 Sajd Hussain, Arif Mahmood, Monsoor Choudry, "North Carolina's Changing Employment Pattern during 1975-2000 and Outlook through 2008," Insight, Employment Security Commission of North Carolina, September 2002, and Labor and Employment Statistics, Employment Security Commission of North Carolina. Salaries are for 2001.
19 United States Census Bureau 2000. Data refers only to North Carolinians age 25 or older.
20 Mass Layoff Data, Labor Market Information Division, Employment Security Commission of North Carolina. The Employment Security Commission of North Carolina defines mass layoffs as 50 or more workers laid-off within a five-week period.
21 Economy. com, Inc. 2002
22 Employment Security Commission of North Carolina, News Release: Continuation of Federal Extended Unemployment Benefits Signed Into Law; Thousands of Jobless N. C. Workers Affected, January 9, 2003.
23 Employment Security Commission of North Carolina, Monthly Activity Reports, 2001-2002.
24 M. L. Walden, "2003 Economic Outlook: Is the Recovery for Real?" NC State Economist, North Carolina Cooperative Extension Service and NCSU Department of Agriculture and Resource Economics, January/ February 2003, p. 2.
25 Lawrence Mishel, Economic Policy Institute, December 2002.
26 Robert S. McIntyre, Robert Denk, Norton Francis, Matthew Gardner, Will Gomaa, Fiona Hsu, and Richard Sims, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, 2nd Edition, The Institute on Taxation & Economic Policy, Washington, DC, January, 2003. Report uses 2002 North Carolina tax law at 2000 income levels. This data does not include taxes paid by the elderly.
Dislocated Workers: Long on Work History, Short on Work Opportunity
27 Chris Estes, William Schweke and Sara Lawrence, Dislocated Workers in North Carolina: Aiding Their Transition to Good Jobs, NC Budget and Tax Center and Corporation for Enterprise Development, 2002, p. 8.
28 Ibid.
29 Facing Facts: The North Carolina Economy, North Carolina Rural Economic Development Center, 2002.
Education Pays
30 The NC Children's Index 2002, North Carolina Child Advocacy Institute.
31 North Carolina Department of Public Instruction. Referring to 2001-2002 school year.
32 North Carolina Community College System, 2002.
33 U. S. Census 2000
34 Lawrence Mishel, Jared Bernstein, and Heather Boushey, The State of Working America: 2002-2003, Economic Policy Institute, 2002, p. 159. Author's analysis from data found in Table 2.17 Change in Real Hourly Wage for All by Education, 1973-2001.
35 A. Sullivan and E. Choi, Hunger and Food Insecurity in the Fifty States: 1998-2000. Waltham, MA: Food Security Institute, Center on Hunger and Poverty, August 2002. Refers to 1998-2000 averages. This data has a 90% confidence level.
36 Household Food Security in the United States, 2001, Economic Research Services, U. S. Department of Agriculture.
37 Hunger and Homelessness in America's Cities, The United States Conference of Mayors, December 2002.
38 Ibid.
39 The Consequences of Hunger and Food Insecurity for Children: Evidence from Recent Scientific Studies, Center on Hunger and Poverty, June 2002.
40 Ibid.
41 North Carolina Low Income Housing Coalition, 2002. Using U. S. Census data.
42 Ibid.
43 North Carolina Low Income Housing Coalition, 2002. Using Office of Economic Opportunity data.
44 Office of Economic Opportunity North Carolina Department of Health and Human Services.
45 Carol Morris, "Out of the Shadows," The Community Task Force on Homelessness, June 2002.
46 Ibid. pg. 1
47 North Carolina Low Income Housing Coalition, 2000.
48 Kaiser Family Foundation, State Health Facts Online (1999-2000).
49 Leighton Ku, The Number of Americans without Health Insurance Rose in 2001 and Appears to be Continuing to Rise in 2002, Center on Budget and Policy Priorities, October 2002.
50 Ibid.
51 Leighton Ku and Donna Cohen Ross, Staying Covered: The Importance of Retaining Health Insurance for Low-Income Families, Center on Budget and Policy Priorities, December 2002.
52 Jocelyn Guyer, Matthew Broaddus, and Annie Dude, Millions of Mothers Lack Health Insurance Coverage: Most Uninsured Mothers Lack Access both to Employer-Based Coverage and Publicly-Subsidized Health Insurance, Center on Budget and Policy Priorities, May 10, 2001. Data from Center on Budget and Policy Priorities' analysis of March 2000 Current Population Survey of people's health insurance status during 1999. Low-income is defined as a family below 200 percent of the federal poverty level.
53 Ibid.
54 Jared Bernstein, Heather Boushey, Elizabeth McNichol, Robert Zahradnik, Pulling Apart: A State-by-State Analysis of Income Trends, Center on Budget and Policy Priorities and Economic Policy Institute, April 2002. See Appendix B for more information.
55 Ibid.
56 Jared Bernstein, Income Picture: Recession Takes Toll on Living Standards, Economic Policy Institute, September 24, 2002.
57 Chris Estes, William Schweke and Sara Lawrence, Dislocated Workers in North Carolina: Aiding Their Transition to Good Jobs, NC Budget and Tax Center and Corporation for Enterprise Development, 2002. Referring to Jadobson, Louis, Robert LaLonde and Daniel Sullivan, The Costs of Worker Dislocation. (Kalamazoo Michigan: W. E. Upjohn Institute for Employment Research, 1993).
58 Ibid.
59 Jean Crews-Klein, Chris Beacham and Catherine Moga, Manufacturing Layoff: Hard Times for Rural Factories, Workers and Communities, North Carolina Rural and Economic Development Center, Inc., April 2002.
60 Ibid.
61 State of the South 2002, MDC, September 2002.
62 Employment Security Commission, 2001 -2003. Nineteen rural counties had unemployment rates over 10% in January 2003.
63 North Carolina Rural Economic Development Center Databank. In 2000, 26.3% of the rural population had less than a high school education compared to 17.2% of the urban. At the same time, 15.1% of rural population had a bachelor's degree or higher education, while twice as many (30.3%) of urban dwellers over 25 did. Dropout rates were also higher in rural counties.
64 North Carolina Rural Economic Development Center Databank. More rural homes were built before 1939 than urban, 23.7% of rural dwellers lived in mobile homes compared to 8.2% of urban, and 48.9% rural dweller owned their home compared to 54.4% of urban dwellers.
Programs Countering Economic Downturns
65 Robert Bowles, UI Benefit Payouts by County and Their Importance as an Economic Stabilizer, Employment Security Commission of North Carolina.
66 Employment Security Commission of North Carolina. Yancey County went from 3.9% unemployment in 2000 to 11% as 2002 ended, but got as high as 14.9% earlier in 2002. Catawba increased more than four time from 2.2% in 2000 to 9.1% by the end of 2002.
67 Monthly Activity Report December 2002, Employment Security Commission of North Carolina, January 24, 2003.
68 Kenneth Hanson and Elise Golan. Effects of Changes in Food Stamp Expenditures Across the U. S. Economy, Food Assistance and Nutrition Research Report Number 26-6, U. S. Department of Agriculture, Economic Research Service (August 2002).
69 Bowles, p. 4.
70 Ibid, p. 5.
71 NC Child Advocacy Institute, 1999.
72 Allen L Schirm and Laura A. Castner, Reaching Those in Need: State Food Stamp Participation Rates in 2000, Food and Nutrition Service, US Department of Agriculture, December 2002.
73 Management Assistance for the Work First Program, Jordan Institute for Families, School of Social Work, University of North Carolina at Chapel Hill and NC Department of Health and Human Services.
APPENDIX A
Living Income Standard Methodology
IMPROVEMENTS IN 2003 LIVING INCOME STANDARD
In an effort to provide the best and most accurate estimate of the cost for families to live in North Carolina, Justice Center staff reviewed and revised the methodologies used to determine the Living Income Standard (LIS). Since the release of the original LIS, the Economic Policy Institute (EPI), a national economic policy think tank, examined the living income standard, or equivalent, of each of the states that had one and prepared an analysis of best practices and options when calculating a state living income standard. Based on a review of this extensive work, we have chosen to alter our methodologies to adopt some of the best practices identified by EPI in order to improve the accuracy of the North Carolina Living Income Standard. These changes, however, mean that the original LIS is not comparable to the 2003 LIS contained in this report. Health care, transportation and miscellaneous costs cannot be directly compared because of improvements in the methodologies used to calculate them. Housing and food costs continue to be based on the same data sources, but we have used a different designation for which counties are urban and which are rural, so that all of the data is consistent with federal designations. As a result, the statewide urban and rural weighted averages for housing and food costs cannot be compared to our earlier numbers.
State law and policy changes also make it impossible to compare certain line items. For example, since the first report, laws and regulations have changed regarding the state's child care rating system. Previously, child care centers and homes were rated either A or AA. Centers rated AA, the better rating, had a higher fair market cost. Today, child care is rated under a five star system, with one star being the lowest rating and lowest cost, and five the highest rating and cost. We have chosen to assume our family budget will use three star care, but this cannot be compared directly to the old system. Similarly, methodologies used to calculate the original tax line items were no longer appropriate due to changes in tax laws and therefore, this line item is not comparable from the original to the current LIS. The bottom line is that both the original and the 2003 Living Income Standards use the best data and methodologies available at the time they are calculated. They both are conservative and opt for the lower cost estimate or methodology where choices must be made. While they are different enough that they cannot be compared to each other, they still offer North Carolina's best estimate of what it takes for a family to really get by. Below is more information about the specific methodologies and data sources used for each line item of the 2003 LIS. For most LIS line items, the most current cost estimates available are for 2001, and so the 2003 LIS is based on data from that year.
HOUSING
Housing costs were generated based on the assumption that most of the families in this population rent, rather than own, their homes. These costs were calculated using the 2001 U. S. Department of Housing and Urban Development (HUD) Fair Market Rent values for each county. These figures include the cost of utilities, but not telephone service. Our assumptions mirror the federal government's guidelines for occupancy standards in determining the size, i. e. number of bedrooms (" housing size adequacy"). Their rules assert that, at a minimum, parents and children should have separate bedrooms. We assume that two children can share one bedroom. Therefore, for both family types discussed in this report, we used the Fair Market Rate for a two-bedroom apartment.
FOOD
Food costs were calculated using the U. S. Department of Agriculture's Low-Cost Food Plan for August 2001. These expenses are based on the age and gender of the adults and the age and number of children in the family. The plans are based on costs associated with a nutritionally sound diet prepared at home. They do not allow for meals eaten in restaurants, including fast-food, despite Consumer Expenditure Survey data indicating that the average American family spends approximately forty percent of their food budget on meals eaten out of the home.
CHILD CARE
The 2001 NC Childcare Market Rate Survey was used to calculate child care expenses. Figures are based on the age of the child and the type of child care setting. We assume that infants receive care in licensed, day-care homes and that preschoolers are in child care centers. We also assume that both groups receive full-time care in three-star facilities.
TRANSPORTATION
Transportation costs were calculated by inflating the 1999 Economic Policy Institute's transportation costs for corresponding families in NC to 2001 costs, using the Consumer Price Index (CPI) for transportation. Their costs are based on the expenses associated with owning and operating a car. Costs are derived from the average miles driven per person, specific to geographic area, based on the findings of the 1990 Nationwide Personal Transportation Survey. The cost per mile used is the IRS cost-per-mile rate, which includes gas, insurance, fees, maintenance and depreciation. The formula used takes into consideration only non-social trips for the first adult and work trips for the second adult.
HEALTH CARE
Costs associated with health care and medical expenses were calculated using the CPI for medical expenses to inflate the 1999 EPI health care costs for NC to 2001. EPI used a weighted average formula that takes into consideration many factors: the costs associated with employer-provided insurance, the costs for purchasing non-group insurance, and out-of-pocket expenses. They took into account that 40% of families do not receive health insurance through their employer and assumed that any workers who did not receive health insurance through their employer or through Medicaid would purchase coverage through a non-group plan. EPI used two online health insurance quote firms for non-group plans, the average employee costs for premiums for family health plans from the Medical Expenditure Panel Survey, and "Hidden from View: The Growing Burden of Health Care Costs" from Consumer's Union to identify out-of-pocket costs.
MISCELLANEOUS
The cost of other necessities was calculated as 31% of the total costs for food and housing, as recommended by EPI's research. This amount includes the expense associated with clothing, personal care, telephone, household supplies, reading materials, school supplies, bank fees, union dues, music, television, and toys. The costs of these items are derived from the Federal Communications Commission and the Consumer Expenditure Survey.
TAXES & CREDITS
Tax costs were computed for each family type using standard federal tax forms. These costs include federal personal income tax, federal Social Security and Medicare payroll taxes (direct worker payments only) equal to 7.65% of pretax wages. This method also produced the amounts a given family would receive in tax credits -the Earned Income Tax Credit and the Childcare Credit. In order to calculate these specific tax amounts, the family budget necessary to meet basic needs was identified as the after-tax income. We then calculated the pre-tax income necessary for families to achieve the after-tax income, with the difference being the federal tax liability. State income taxes were calculated using the personal income tax rate schedule set forth by the Institute on Taxation and Economic Policy.
1 Jared Berstein, Chauna Brocht and Maggie Spade-Aguila, How Much is Enough? Basic Family Budgets for Working America, Economic Policy Institute, Washington, D. C., May 2000.
2 North Carolina Public Officials implemented a new rating system to improve the quality of child care in North Carolina and to better inform parents and caretakers as they search for care for their child. In 1999 the state system consisted of only two ratings, A or AA. Since then a five star rating system has been implemented with one star as the lowest rating and five the highest. The vast majority of child care providers in the state are subject to the rating system and must pass basic health, safety and educational standards to increase their star rating. Childcare market rates go up with the star rating. This shift from a two-tiered market rate system to a five-tiered system means that child care rates are not directly comparable. In 1999 we assumed the child was in an AA home and used those rates. In this report we assume the child is in a three star rated home or center. We maintained the same assumptions regarding the age of the children and whether they were cared for in a family home or day care center.
APPENDIX B
Calculating Families Under the LIS Part II of the report relies upon the U. S. Census Bureau's 2002 March Current Population Survey (CPS), which surveys individuals about their household status, employment and income for 2001. The CPS is an official source of government statistics on employment and unemployment. These data were used to determine the number and characteristics of people living under the Living Income Standard as it compares to the Federal Poverty Level. Data for the year 2001 are used because the LIS is calculated using 2001 cost estimates.
The original Working Hard is Not Enough relied upon Employment Security Commission (ESC) calculations of North Carolina Department of Revenue (DOR) data to determine the number of families living under the LIS. We decided to use Census data in this report because it provides considerably more detailed information about the families under the LIS than the DOR data used previously. In addition, the funding allocated to the ESC to conduct that study was not renewed in subsequent years making that data unavailable. Because we changed the source of the data for calculating the number of families under the LIS, the current findings are more accurate, but there is no way to compare the original numbers with the findings of this report. In future years, the Census data used here will be available and comparable numbers can be generated.
In reporting the results in this report, we assume the same definitions as those used by the Census. See below for the definition of some specific terms used in this report. For further information, refer to the U. S. Census Bureau website (www. census. gov). Family -A family is a group of two or more people (one of whom is the householder) related by birth, adoption or marriage and residing together. If two families (a "primary family" and a "subfamily") who are related by birth, marriage or adoption that would not typically be living together (i. e. extended family or relatives) are sharing a residence, they are counted as only one family, including the incomes and number of people in both families. When two or more unrelated families are sharing a residence, they are counted as only one family and the income and number of people is calculated based solely on one of the two families, considered the primary family. Child -A child is defined by the Census as a person under the age of 18. Excluded in the count of children in families are unrelated individuals under the age of 15 (ex: foster children).
Worker -For the purposes of this report, a worker is someone, either the head of household or spouse (not child) who had at least one week of work in 2001 and had total personal earnings greater than zero. A "full-year worker" is someone who works 50 weeks a year or more. Anyone who works less than 50 weeks is counted as a "part-year worker" in these findings.
[APPENDIX C not in this version]
APPENDIX D [accompanying chart not in this version]
Living Wage Policies Passed in U. S. Localities As of 2002, there were 99 active living wage ordinances in US cities and other localities in 27 states. Forty-eight new ordinances have been enacted since the writing of the original Working Hard is Not Enough. North Carolina has one local jurisdiction that has adopted a living wage ordinance.
The average wage required in these adopted ordinances is $9.05 for those receiving benefits and $9.99 for workers not receiving benefits, ranging from $6.15 to $13.00 and $6.87 to $14.75 respectively. In addition, there are currently campaigns under way in 74 cities and counties, on the campuses of 29 colleges and universities, and statewide campaigns in 19 states. In North Carolina, there are campaigns advocating for living wages to at least three local governments and one university, as well as a statewide living wage campaign. These ordinances require that local employees and/ or employees of local government contractors be paid a living wage. The ordinances vary in their definition of a living wage, who is covered and how it is implemented. They vary greatly as to whom they apply including to city contractors, government employees, recipients of aid or tax abatements and subgroups of these. The following chart lists active living wage ordinances by year of passage. Additional information regarding the specifics of these ordinances, as well as resource material for organizing campaigns, is available from the Association of Community Organizations for Reform Now (ACORN) web site at www. livingwagecampaign. org.
Appendix E: Answers to Questions about Raising the Minimum Wage During a Recession
Low-wage workers, like all workers, are not immune to the difficulties caused by a recession and the period of recovery that follows. But is it fair to say that raising the minimum wage will have negative effects on employment, causing further job loss and extending the period of economic downturn? Research does not support that assertion.
MINIMUM WAGE LEGISLATION AFFECTS A SMALL PERCENTAGE OF THE WORKING POPULATION
The last increase in the minimum wage in 1996 and 1997 affected only 8.9% of the workforce. This $1.90 increase was enacted without leading to any systemic, significant job loss among those affected. Current proposals to raise the minimum wage $1.50 or $2.25 reach only 4.5% and 8.2% respectively of the current workforce. Affecting such a small share of the work-force minimizes any impact such an increase has on the economy as a whole. Moreover, research demonstrates that employers often are able to absorb the costs of a wage increase through higher productivity, decreased turnover and absenteeism, lower recruiting and training costs, and improved worker morale.
LITTLE EVIDENCE OF NEGATIVE EFFECTS FROM PAST INCREASES ENACTED DURING RECESSION
Regardless of the point of the business cycle at which a wage increase is enacted, there is little evidence for any measurable job loss. During the economic recession of the early 1990s, the minimum wage was increased almost one dollar. Studies, which controlled for overall economic conditions, demonstrated that the increase had no negative impact. Studies did find, however, that the increase led to significant gains for retail-trade workers in many states.
MINIMUM WAGE INCREASES DO STIMULATE THE ECONOMY
A benefit of increasing minimum wage is that it quickly stimulates the economy, because most of these low-wage workers spend their additional earnings quickly on necessary items.
Source: Economic Policy Institute: Repairing the Wage Floor. For additional information regarding concerns associated with wage increases, see Working Hard is Not Enough, January 2001, Appendix E.
Appendix F: States with Minimum Wage Laws Higher than Federal Minimum Wage
The majority of employers are required to pay their employees wages equal to at least the federal minimum wage set by Congress. A very small percentage of employees are exempt from the federal law and are covered by the laws in each state. While North Carolina has decided to track the federal law, twelve states have determined that $5.15 per hour, the current federal minimum wage, is inadequate and have set their state minimum wage at a higher amount. Since the writing of the first Working Hard is Not Enough, ten of the eleven states that had adopted higher state minimum wage laws by 2000, have increased their minimum wages. Maine is the one additional state that has enacted legislation since that time. These higher state minimum wage rates prevail over federal law in their states.
Source: US Dept of Labor, Employment Standards Administration. Jan. 2003
Appendix G States with an Earned Income Tax Credit As of February 2003, seventeen states had enacted Earned Income Tax Credits (EITCs) based on the federal credit. In addition, two local governments -Montgomery County, Maryland, and Denver, Colorado -offer local EITCs. Sixteen of the state credits piggyback the federal EITC, meaning they use federal eligibility rules and express the state credit as a specified percentage, ranging from 5 to 50 percent, of the federal credit. One additional state, Minnesota, has adopted an EITC based on federal eligibility rules with a structure that is very similar to the federal credit. In twelve of the states, these credits are "refundable." Mirroring the federal practice, this allows a family to receive the full amount of its credit even if the credit amount is greater than the family's income tax liability.
When a state adopts a refundable tax credit structure, a wide range of low-income working families with children, including workers just entering the workforce and those with very low earnings, benefit from the policy.
The other remaining five states have enacted "non-refundable" credits. These limit the amount of a credit to a family's income tax liability. A non-refundable credit assists fewer working-poor families with children and is less effective as a work incentive. States increasingly prefer the advantages of a refundable credit. Ten of the 12 state credits that were enacted or expanded in 2000, 2001 or 2002 are refundable.
Appendix H Resources The following are just a sampling of the numerous resources available that provide a wealth of information on the various issues and policies discussed in this publication.
ORGANIZATIONS
AFL-CIO www. aflcio. org
Association of Community Organizations for Reform Now (ACORN) www. acorn. org and www. livingwagecampaign. org Center on Budget and Policy Priorities www. cbpp. org
Economic Policy Institute www. epinet. org Institute on Taxation and Economic Policy www. itepnet. org North Carolina Alliance for Economic Justice www. ncaej. org North Carolina Justice and Community Development Center www. ncjustice. org North Carolina Progress Board www. theprogressboard. org
North Carolina Rural Center www. ncruralcenter. org
PUBLICATIONS
Bernstein, Jared, Heather Boushey, Elizabeth McNichol, Robert Zahradnik, Pulling Apart: A State-by-State Analysis of Income Trends, Center on Budget and Policy Priorities and Economic Policy Institute, April 2002.
Estes, Chris, William Schweke and Sara Lawrence, Dislocated Workers in North Carolina: Aiding Their Transition to Good Jobs, North Carolina Budget and Tax Center and Corporation for Enterprise Development, June 2002.
McIntyre, Robert S., Robert Denk, Norton Francis, Matthew Gardner, Will Gomaa, Fiona Hsu, and Richard Sims Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, 2nd Edition, The Institute on Taxation & Economic Policy, January 2003.
Mishel, Lawrence, Jared Bernstein, and Heather Boushey State of Working America 2002-2003, Economic Policy Institute, Ithaca NY: Cornell University Press, 2002.
NC 20/ 20: A report about the future of North Carolina, North Carolina Progress Board, December 2001.
Reynolds, David, Living Wage Campaigns: An Activist's Guide to Building the Movement for Economic Justice, ACORN, 2003.
Schmidt, Sorien and Dan Gerlach Working Hard is Not Enough, NC Justice & Community Development Center, January 2001.
State of the South 2002, MDC, September 2002.
The 2003 Earned Income Tax Credit Outreach Kit, Center on Budget and Policy Priorities, Washington DC. 2003.
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