South Carolina’s Unemployment Rate Hits 11.1 Percent as Texas Employment Falls Back to Pre-Recession Levels

This courtesy of the Georgia Public Policy Foundation:

“The payroll count is back to prerecession levels in Texas. California is nearly 1.5 million jobs in the hole. Why such a difference? Chalk it up to taxes, regulation and attitude, says Investor’s Business Daily. The difference in tax systems reflects a difference in attitudes toward business and the wealth that business generates. Capital gains are tax-free in Texas; in California, they are taxed up to 10.55 percent. To an entrepreneur choosing where to set up shop, the message is clear: Texas wants to reward success; California wants to tax it. California also has developed a web of regulations that raises labor costs, spurs litigation and ties up building projects indefinitely. “

The article from Investor’s Business Daily is here. IBD, by the way, is contemplating a move to Plano, Texas.

For the record, South Carolina’s effective (after deductions, etc.) capital gains tax rate is 3.9 percent.

As for unemployment, today’s new figures (from September 2010) contained more bad news. The state’s unemployment rate increased from an estimated 11 percent in August 2010 to 11.1 percent for September. The national rate remained unchanged at 9.6 percent.

(Here, let’s just say The State’s headline that “S.C. employment falls to 11 percent” is deceptive. The preliminary rate for August 2010 was 11 percent. As The State notes, the revised rate for August was bumped up to 11.1 percent.  Thus, they are comparing apples (preliminary) to oranges (revised).)

Moreover, as we have written before, the actual unemployment rate is likely higher because of the number of discouraged/inactive job hunters.

June Employment Numbers: Total Employment Falls, Local Government Hiring Continues to Grow

A shrinking labor force and increased government hiring are making the job numbers look better than they really are, according to a new policy brief from the South Carolina Policy Council.

Despite a decline in the state unemployment rate from May to June (11.1 percent to 10.7 percent)—something typically viewed as a good thing—there were fewer people actually employed in June than in May. As of June 2010, there were 1,919,404 persons employed in South Carolina, compared to 1,920,479 as of May.

Workers who have dropped off the unemployment rolls are not included in unemployment figures. The pool of potential workers (i.e., those looking for work) shrank once again from May to June 2010—from 2,159,200 to 2,149,600—a contraction of 9,600 persons.

While private sector employment is shrinking, total public sector employment in South Carolina increased 2.27 percent from January to June 2010:

• Federal: 15.5 percent increase (31,500 to 36,400)
• State: 1.71 percent decrease (99,000 to 97,300)
• Local: 2.16 percent increase (221,900 to 226,700) 

Since the beginning of the recession in December 2007, private sector employment in South Carolina has declined by 124,100 jobs, or 7.71 percent. By comparison, public sector employment has increased by 19,600 jobs, or 5.75 percent.

Harvard Study: Pork Barrel Spending Hurts Private Sector Investment

As we wrote last week, public sector hiring is hindering a private sector recovery. (See here for our recent analysis of why South Carolina’s unemployment rate is declining—even though there are fewer private sector jobs available overall.)

Now, a study from Harvard Business School provides additional evidence that government spending reduces private sector investment. The study looked at what impact increased federal earmarks can have on private sector activity. More specifically, the study investigated what happens when a politician becomes chairman of a committee and thus holds the purse strings over pork barrel spending:

“We focus specifically on the 232 instances over the last 42 years where the senator or representative of a particular state ascends to the chairmanship of a powerful congressional committee. During the year that follows the appointment, the state experiences an increase of 40-50 percent in their share of federal earmark spending, and a 9-10 percent increase in total state-level government transfers. The funding increase persists throughout the chair’s tenure and is gradually reversed upon his departure.”

The results are astounding.

“We find that fiscal spending shocks appear to significantly dampen corporate sector investment activity. Specifically, we find statistically and economically significant evidence that firms respond to government spending shocks by: i) reducing investments in new capital, ii) reducing investments in R&D, and iii) paying out more to shareholders in the face of this reduced investment opportunity set.”

Additionally, the study shows the results appear to flip when a politician is no longer chair of his committee:

“Further, we find that when the spending shocks reverse (through a relinquishing of chairmanship), most all of these behaviors reverse.”

It gets worse.

“Finally, we also find some evidence that firms scale back their employment, and experience a decline in sales growth. Our findings demonstrate that new considerations may limit the stimulative capabilities of government spending.”

In short: more government money means less private sector production.

Although this report is specific to earmarks, the same logic can be applied to all manner of government spending. It creates a crowd-out effect in the private sector. Here in South Carolina, crowd-out from the federal stimulus alone will cost an estimated 24,000 to 35,000 lost private sector jobs.

Government Jobs and Shrinking Labor Pool Hide Unemployment Reality

New government unemployment statistics paint a misleading picture of an economic recovery for South Carolina.

The U.S. Bureau of Labor Statistics says unemployment in South Carolina fell to 10.7 percent for June—down from a record 12.5 percent in January. But the way government counts unemployment figures fails to account for tens of thousands of workers who have simply fallen off the unemployment rolls, says a new report from the South Carolina Policy Council. What’s more, these employment figures are inflated by a dramatic increase in public sector employment in the state, including temporary positions as census takers. (During the 1930s, the government did not include government relief jobs in employment statistics.)

Here’s the real employment story in South Carolina:

• Since June 2009, more than 34,000 workers have withdrawn from South Carolina’s job market.
• From January to June 2010, the state’s labor force shrunk by 24,376 jobs.
• From January to May 2010, total public sector employment in South Carolina increased 3.66 percent.
• Since December 2007, private sector employment in South Carolina has declined by 130,100 jobs, or 8.09 percent.
• By comparison, since December 2007 public sector employment has increased by 24,500 jobs, or 7.19 percent.

Put another way, the private sector has shed 5.3 jobs for every public sector job created.

In the long run, increased government spending will ultimately have a detrimental impact on private sector job growth in South Carolina. Not only will the federal stimulus package likely lead to a state tax increase, it will also result in 24,000 to 35,000 lost private sector jobs.

These job losses will occur because government spending does not stimulate private sector growth, but limits it—precisely because government spending is fueled by taxes imposed on the private sector.

Unemployment Tax Credit Slipped into Economic Development Bill

As we predicted last year, the unemployment tax credit has been revived this year, as legislators look for ways to bolster their claims that they are doing something to address South Carolina’s among-the-worst-in-the-nation unemployment rate.

The credit has been added as an amendment to H 4478 – an omnibus economic development bill that is the brainchild of House Speaker Bobby Harrell and the following team of high-powered consultants: 

• April Allen – O’Neal Inc.
• Lewis Gossett – South Carolina Manufacturers Alliance
• Nick Kremydas – South Carolina Association of REALTORS
• Burnie Maybank – Nexsen Pruet, LLC; Former Director of the Department of Revenue
• Otis Rawl – South Carolina Chamber of Commerce
• George Wolfe – Nelson Mullins – Chairman, Economic Development Practice Group

H 4478 passed the Senate today on third reading. It seems likely the House will concur with the Senate version – which rejected the House’s proposal to eliminate the corporate income tax. So instead of broad-based tax reform, we are again left with targeted tax cuts and special interest subsidies.

So far, more than $1.5 billion in state-driven economic development policies have done nothing to bring prosperity to South Carolina. According to the latest numbers, South Carolina’s unemployment rate is 11.6 percent – 6^th highest in the nation.

Granted, there was a large decrease (0.6 percent) in the unemployment rate for April. But it’s not clear whether this is because of new job creation or because of discouraged workers dropping off of the rolls. South Carolina is tied with Michigan as being the worst state in which to find a job – with the average job search taking 19.4 weeks in 2009.

Last year, the credit appeared as standalone legislation: S 690. As we noted in our Best/Worst 2009:

This bill is a bad idea for two reasons: First, the bill arbitrarily provides an estimated $300 million tax cut to certain businesses (firms ready to hire for one reason or another) and workers over others. Second, the credit won’t work. It is too narrow (only applies to those actually collecting unemployment and excludes many small businesses) and too temporary (24 months).

But let’s get to the heart of the issue. If lawmakers really believe a targeted, temporary tax credit is going to create jobs, then wouldn’t a permanent, across-the-board tax cut do even more to stimulate the economy? Likewise, wouldn’t cutting South Carolina’s highest-in-the-nation manufacturing property tax be a better policy than the smattering of targeted tax credits laid out in H 4478?

The difference here is not one of philosophy. Everyone agrees tax cuts create jobs and grow the economy. But cutting taxes for everyone would give lawmakers less control over the political game of picking winners and losers. In the end, this is about power.

The power of the legislative leadership to raise money from lobbyists versus the power of the people and the free market. Power vs. Freedom. That’s what’s at stake here.