In the dependent danger zone

September 18, 2011 

North Carolina was one of the nation's most rapidly growing states during the first decade of the new millennium. In absolute terms, the state added 1.5 million newcomers and grew at a rate (18.5 percent) almost twice the national average (9.7 percent). Most of the growth came from migration - movers from other states and abroad. Combined with a more general aging in place of the resident population, newcomers are dramatically changing the state's demography.

Geographically, the demographic shifts are manifested in a patchwork of rapidly growing, slow growing, and declining communities. At one extreme, 15 counties - mainly I/40-I/85 corridor communities - captured 70 percent of the state's net population growth between 2000 and 2010.

At the other extreme, 7 counties - mainly in the state's coastal plains and mountain regions - lost population during the first decade of the new millennium. In these counties, out-migration exceeded in-migration but also, in several instances, the death rate exceeded the birth rate. In between these two extremes, the remaining counties experienced either slow absolute growth or no growth during the decade.

Undergirding this uneven pattern of population change is a fiscal train wreck in the making.

Simply put, there are far too many counties where the ratio of tax-base "noncontributors" to "contributors" creates a huge dependency problem for the state.

The map illustrates the nature, magnitude and geographical extent of the problem. It specifies, using Census 2010 data, the number of noncontributors, or dependents, per 100 employed, taxpaying workers in each of North Carolina's 100 counties.

For the state as a whole, there were 66 dependents for every 100 employed workers in 2010. It is extremely difficult, if not impossible to regain and sustain the state's fiscal health and economic viability when there are - using the inverse of the dependency ratio - only 1.5 employed workers for every dependent.

Within the state, as the map shows, the situation is especially dire in the 18 counties coded black - signaling extremely high dependency ratios - where there were between 101 and 145 dependents for every 100 employed workers in 2010. During the first decade of the new millennium, net outmigration of the working age population left behind in these counties a mostly aging population - most of whom were either not engaged in or weakly tied to the labor market.

The majority of the state's counties, coded dark gray in the map, had dependency ratios in 70 to 99 dependents per 100 employed workers range. Not unlike the counties coded black, the dependency ratios are too high for the state to remain competitive.

Only 17 N.C. counties, coded light gray and white in the map, had low-to-moderate dependency ratios (i.e., 40 to 69 dependents per 100 employer workers) in 2010. Between 2000 and 2010, these counties were the state's primary population growth magnets. Also, because a higher percentage of the employed work force was well educated, they were better off financially and therefore better able to provide essential services to their youth and seniors than the black- and dark gray-coded counties.

But even these counties are at a grave risk of fiscal calamity. Their future economic viability is at risk because the well-educated have not fared very well in the current economic downturn.

Both long-term joblessness, defined as being unemployed for six months or longer, and poverty have increased sharply among those with some college, a bachelor's degree or higher since the onset of the great recession in 2007. Moreover, although they are net importers of population, out-migrants had higher per-capita incomes than in-migrants to several of these counties (e.g., Wake and Mecklenburg) between 2004 and 2008, according to IRS migration statistics.

And looking ahead, it is unlikely that major fiscal contributions will be forthcoming from the state's higher education pipeline. Today's college graduates take on average six years to complete their degrees and enter a currently depressed job market with on average $20,000 in college loan debt.

Three strategies could avoid the fiscal train wreck in the making.

First, North Carolina should augment efforts to recruit plants with strategies to recruit people who can help propel the state forward in the years ahead. We should target homegrown talent that moved away and has done well, especially those who are likely to have elder care responsibilities in counties with high dependency ratios. As with industrial recruitment, we should create incentive packages for these individuals to return and use their creative entrepreneurial acumen to develop viable businesses and sustainable jobs in the state.

Second, the state must embrace recent immigrants, who tend to be younger and far more entrepreneurial than the native born, and aggressively recruit new foreign born talent and leverage their presence to develop export markets in their home countries for locally produced goods and services.

Finally, the state must recognize the business development and job creation potential of both an emergent elder care economy and the diverse ethnic markets that undergird North Carolina's amazing demographic growth and change over the last decade.

By pursuing these strategies, North Carolina leaders can simultaneously reduce unacceptably high dependency ratios and enhance the long-term financial health and viability of the state.

James H. Johnson Jr. is William Rand Kenan Jr. distinguished professor at UNC-Chapel Hill's Kenan-Flagler Business School and director of the Urban Investment Strategies Center at the university's Frank Hawkins Kenan Institute of Private Enterprise.

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