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John Hood: Make it easier to work in NC

By John Hood

RALEIGH — North Carolina’s unemployment rate averaged 3.9 percent during 2019.

For economists, that rate signifies “full employment” (the nation is at full employment, too, and our state’s rate is not significantly different from the nation’s). But that certainly doesn’t mean all potential workers are employed. And it doesn’t mean we couldn’t adopt more policies to increase productive employment among North Carolinians.

You might find it puzzling that any jobless rate above zero could constitute “full employment.” But keep in mind that even in the midst of a strong economy with a healthy labor market, there will always be people leaving and looking for jobs. Some will do so on their own initiative — seeking career advancement or relocating with a spouse, for example. Others will be fired, or will lose their jobs because their employers contract, automate, or go out of business.

Moreover, there are potential workers who lack jobs and aren’t captured by the most-familiar statistic. The rate I cited at the beginning of this article, and the one that makes headlines every month, is called the U-3 rate. It measures how many people who are actively looking for work have yet to find a job.

There are broader measures, however. Some people look for a job for a while, get frustrated, and stop looking. They are called discouraged workers. Others, known as marginally attached workers, aren’t currently seeking work because they are doing something else, such as taking care of a loved one. Still others are employed part-time but would rather be working full-time, a status called underemployment.

If we include discouraged, marginally attached, and underemployed workers, North Carolina’s U-6 unemployment rate averaged 7.3 percent last year.

Don’t panic: that’s still undistinguishable from the national average. It’s also a big improvement from a decade ago, when North Carolina’s U-6 rate was a whopping 17.7 percent. Still, it signifies that a low headline rate, by itself, does not convey fully the amount of “slack” in a labor market. It also doesn’t tell us what percentage of full-time workers would rather be employed in a different occupation but can’t for some reason. Other surveys, and common sense, would suggest that percentage is far from tiny.

One reason some North Carolinians can’t pursue the jobs they really want is that our state makes it prohibitively expensive to do so. We license dozens of occupations, from cosmetology and massage therapists to auctioneers and insurance adjusters, that could instead be the subject of voluntary certification or other procedures that provide potentially useful information to consumers without creating artificial barriers to entry.

Most of the time, the reason a state such as North Carolina regulates a profession is that the members of the profession asked for it. Making it harder to enter the field tends to have the effect of reducing employment in that field — which translates into higher pay for the people already employed in it.

Defenders of licensing say the tradeoff is worth it because consumers get better, safer services as a result. This claim is not well supported by rigorous research. The latest study I’ve seen came out just a few weeks ago. Scholars from Boston University, Harvard, MIT, and Stanford looked at an online platform for home-improvement services. They found that in states where the service providers were subject to more regulation, there were fewer of them. Less competition meant that consumers had to pay more for the same services. But consumers in those higher-priced places were not more satisfied with the work performed than consumers in less-regulated places were.

While debates about economic regulation often reflect traditional partisan divides, that’s not really the case here. When it comes to occupational licensing, some of the freest labor markets in the country are in “blue” states such as Minnesota and Vermont. Some of the most restrictive are “red” states such as Florida and Alabama. On this issue, North Carolina is, again, somewhere in the middle. Surely the Tar Heel State can do better than that.

John Hood is chairman of the John Locke Foundation.



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