The Palmetto Insider

The blog of the South Carolina Policy Council

Posts Tagged ‘Unemployment

Budget Crisis Long in Coming

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Despite all the rhetoric about budget cuts and employee furloughs, South Carolina’s FY10-2011 budget was the largest in state history. The total state budget was $21.149 billion. This includes: $8.268 billion in Federal Funds; $7.766 billion in Other Funds; and $5.115 billion in General Funds. That’s an increase of $500 million or 2.19 percent over last year. The increase comes mostly from increased fine and fee revenue and one-time federal stimulus dollars.

But this year’s budget increases are not an isolated phenomenon. Over the past 10 years:

  • The total state budget increased by 44.49 percent (FY2002 to FY2011).
  • The budget increased by 4.14 percent annually.
  • The budget increased every year, except one (FY2010).
  • In the five-year period (FY2003-FY2008) prior to the beginning of the current recession, the total budget increased 34.56 percent, going up by more than $5 billion.

According to the Mercatus Center, South Carolina’s state and local government spending relative to personal income is 26 percent – 5th highest in the country. In other words, local and state government spends 26 cents of every dollar earned by South Carolina’s people. Similarly, government spending accounts for 23 cents of every dollar of Gross State Product (GSP) – 4th highest in the country.

Debt is another serious problem. South Carolina government is carrying $40 billion in debt, including state, local, and school district debt, as well as unfunded liabilities on public employee pensions and post-retirement health benefits. State and local governmental outstanding debt accounts for 22 percent of GSP – again, 4th highest in the nation.

So we have high spending and high debt relative to income and GSP. What does that get us?

An unemployment rate of 11 percent – 6th highest in the nation (as of September 2010) and a median household income of $42,442, which is 42nd lowest in the nation (as of 2009). Our surrounding neighbors have unemployment rates of 9.6 percent (North Carolina), 8.9 percent (Alabama), 10 percent (Georgia), and 9.4 percent (Tennessee). A pretty uncompetitive situation for the Palmetto State.

It goes without saying that South Carolina is suffering from a budget and spending crisis – and it’s good to know governor-elect Haley recognizes this. But the crisis is not new. It comes from years of fiscal mismanagement and poor budgetary practices. None of these problems were addressed during the 2010 session. It’ll be interesting to see how legislators respond in 2011.


Written by SCPC

November 22, 2010 at 10:15 am

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

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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.

Written by Jameson Taylor

October 22, 2010 at 9:30 am

New Unemployment Figures: A light at the end of the tunnel … or just a nightlight?

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Time for a recurring feature here at Palmetto Insider—the monthly take on the recently released unemployment data.

In July, we reported that unemployment is an unreliable figure when it comes to gauging the economy’s health. This is because the unemployment rate undercounts the number of unemployed, masking the state’s shrinking labor pool. It is also because it doesn’t indicate that public sector hiring is outpacing private sector job creation.

What’s the story for the most recent data from July 2010?

  • South Carolina’s unemployment rate increased from 10.7 percent to 10.8 percent
  • The total size of the state’s labor force decreased by 6,682 workers (2,150,200 in June to 2,143,400 in July)
  • Total employment in South Carolina fell by 6,918 (1,919,500 in June to 1,912,500 in July)

While this 0.1 percent increase in unemployment does not seem like much, it suggests South Carolina’s economy is shrinking—literally driving existing workers out of the state.

The last time the labor force was this low was July 2008.

The state’s response is predictable. According to John Finan, executive director of the Department of Employment and Workforce, the Retail Trade and Construction sectors are moving in a lateral motion. He said the government is “committed to assisting job seekers in finding employment.”

But it’s the notion that government is in the business of finding people employment that has our economy in such a pickle. The government’s role should be to protect private property rights and allow entrepreneurs in the market to create jobs and help job seekers find employment.

Between bailouts, health care mandates, and all of the other government interventions, one can understand why the private sector has been slow to recover. The government is sending a clear message— “we are in charge, we’ll fix everything”—that is encouraging many in the private sector to sit on their thumbs. The academic term for this is “regime uncertainty”— a phrase coined by economist Robert Higgs to demonstrate why the recovery from the Great Depression took so long. Higgs writes:

In any event, the security of private property rights rests not so much on the letter of the law as on the character of the government that enforces, or threatens, presumptive rights.

The “character” or attitude of the current regime is intervention first. But by its very definition, government intervention is arbitrary. Thus, there is uncertainty in the private sector.

There is one bright spot in all of this. While total government shed 5,500 jobs this month, the private sector added 6,900 jobs. Most of that gain comes from the Professional & Business Services sector, which increased employment by 4,800 jobs.

The biggest decline in the public sector comes from local government—which cut 3,600 jobs based on the seasonally adjusted data. These are expected losses from the release of summer employees.

South Carolina continues to be above the national unemployment rate, which remained unchanged at 9.6 percent.

Here are the unemployment rates for our neighbors:

  • Georgia: 9.9 percent (down from 10 percent in June)
  • North Carolina: 9.8 percent (down from 10 percent in June)
  • Alabama: 9.7 percent (down from 10.3 percent in June)
  • Tennessee: 9.8 percent (down from 10 percent in June)

Without looking into the details of what is driving the decrease in unemployment in neighboring states, it’s difficult to know what to make of these numbers. But the likelihood is that people are leaving South Carolina for greener pastures.

Written by Geoff Pallay

September 8, 2010 at 3:40 pm

State Hiring Increases While Private Sector Shrinks

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Over on the Policy Council site, we’ve just released a report questioning the notion that a decreasing unemployment rate means the economy is improving.

As indicated in our analysis, there are two factors that can magically make a state’s employment rate improve. (For instance, from a high of 12.5 percent in January 2010 to the current 10.7 percent rate for South Carolina.) These factors are:

1)      A drop-off in the number of people actually seeking employment

2)      A spike in public sector hiring

Both of these factors are what are causing South Carolina’s apparent increase in employment.

Consider the following:

  • From January to June 2010, the state’s labor force shrunk by 24,796 jobs—contracting by 9,618 persons in the last month alone.
  • The number of people actually employed in South Carolina fell by 1,009 from May to June 2010.
  • Private sector employment in South Carolina has declined by 130,100 jobs, or 8.09 percent, since the beginning of the recession.
  • Public sector employment has increased by 24,500 jobs, or 7.19 percent, since the beginning of the recession.
  • If public sector employment were excluded from the state’s labor picture, the unemployment rate would be 28 percent.

As our report illustrates, the private sector is being crowded out by a rapidly expanding public sector.  

What is even more disturbing is that this trend doesn’t just go back to the start of the recession in December 2008, but is symptomatic of most of the decade. The 2000s started off with a promising economic outlook, as the technology boom was in full force. But then the 2001 recession hit after 9/11; and the housing bubble burst in 2008.

All in all, the first decade of the new century didn’t bode well for free enterprise in the Palmetto State:

  • From 2000 to 2010, South Carolina’s private sector lost 4.73 percent of its jobs.
  • Meanwhile, total public sector hiring increased by 10.3 percent.
  • By comparison, state government lost 2.46 percent of its jobs.
  • During the same period, state spending increased by 60 percent ($13.004 billion in FY2000 to $20.994 billion for FY2010).

Moreover, the last five years, in particular, have seen a massive increase in public sector—including state-level—hiring:

  • Total public sector hiring in South Carolina increased by 8.33 percent.
  • State government employment increased by 4.32 percent (94,900 to 99,000) from January 2005 to January 2010.
  • Private sector employment declined by 4.16 percent (1,493,500 to 1,431,400) during the same period: a loss of 62,000 jobs.
  • During the same period, total state spending increased by 23 percent, or $3.876 billion. 

In short, the public sector is not only growing faster than the private sector, the private sector is shrinking in relation to the public sector. In terms of state hiring alone, the ratio of private sector employment to state employment went from 15.74 in January 2005 to 14.46 in January 2010.

  • This represents an 8 percent contraction of the private sector in relation to state government.

Likewise, the overall ratio of private sector employment to public sector employment shrunk from 4.59 in January 2005 to 4.06 in January 2010.

  • This represents a 12 percent contraction of the private sector in relation to the size of government.

Written by Geoff Pallay

July 21, 2010 at 10:05 am