They come, they go

 In 2014-09

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According to recent data from the U.S. Bureau of Labor Statistics, North Carolina lost a bit more than 750,000 private-sector jobs last year. Doesn’t that number look staggering? At the beginning of last year, businesses in the state employed about 3.3 million workers. So the job loss amounted to nearly a quarter of total private employment.

Before you starting wondering how you missed the onset of another Great Depression, let me hasten to point out that private employers also added nearly 825,000 jobs in the state last year. That represents new and existing companies hiring workers, just as the jobs lost represents existing companies shedding workers as well as businesses shutting down for good.

There is a great deal more churn in the labor market than many realize. That can lead to big differences in how people perceive their local or regional economies. Some hear about a big layoff or relocation and conclude that the economy must be getting worse. Others hear about a large employer expanding or moving into the area and conclude that things must be getting better. In reality, both type of events are going on at the same time pretty much everywhere in the country.

Consider Texas, which netted nearly 300,000 jobs in 2013. Its private-sector job-growth rate of 3% was one of the nation’s highest. Yet in each quarter, Texas lost at least 5% of its prior private employment. Some businesses went kaput. Others downsized. Displaced workers had to find other jobs in their communities or move to places with stronger labor markets. What kept the economy healthy was that other companies added an average of 545,000 jobs every three months — an average job creation rate of 5.9% a quarter. Businesses in North Carolina created jobs at an even faster clip, but job losses were higher here than in Texas. The net result was that private employment in North Carolina grew 2.3% — about 75,000 — in 2013. That was higher than the national average and an improvement over 2012 but not as sizzling a rate as Texas experienced.

About one in nine workers is self-employed. They aren’t included in the private-sector employment statistics I’ve been citing, which are derived from surveys of businesses subject to unemployment-insurance taxes. Openings and closings among the self-employed are often higher than that for business establishments, which means the true churn rate is hard to see in the usual government reports. (Self-employed workers are counted in the federal government’s monthly household survey, but it isn’t designed to track gross gains and losses in the labor market.)

For policymakers, there are two important takeaways from all this. First, economies are so complex and dynamic that it is hard to see them fully and measure them accurately. No one person or group is “in charge” of such a chaotic system. Nor should anyone try to take charge of it. Government policies can have an important influence on the ebbs and flows of business decisions, obviously, but the effects are often hard to discern or contrary to what policymakers intend.

Second, entrepreneurship is critical to the health of any modern economy. Even well-managed companies will reach the end of their useful lives. Technologies change. So do customer tastes, international trade patterns and a host of other factors. Regardless of what policymakers do, employers will shed jobs or go out of business on a regular basis. Attempts to stop this through protective regulations and subsidies are doomed to fail in the long run and often cause great harm in the short run.

The key is giving startups and young businesses room to grow, so the jobs they create more than offset the normal atrophy of existing employers. That means ensuring the highest possible rate of return on investment in new enterprises. States and localities should keep their tax rates and regulatory burdens as light as possible — consistent with delivery of basic services such as public safety, education and infrastructure. It’s a balancing act but not an impossible one. Governments spend lots of money on programs outside of these core functions. Even given the need to raise a certain amount of government revenue, there are smart, pro-growth ways of going about it — as well as not-so-smart ways (such as high marginal tax rates) that discourage work, savings and entrepreneurship.

While compelling anecdotes can be useful tools, they are not reliable as evidence of broader trends or guides for how to respond to them. Though undeniably painful and wrenching, some layoffs and bankruptcies are inevitable. What isn’t is the sowing of new seeds where familiar crops used to thrive. But without such cultivation, next year’s harvest of jobs and economic opportunity will be scant.

 

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