Employment

The Blame Game Over South Carolina's Slump


In a Presidential race that’s all about unemployment, the Jan. 21 South Carolina primary, the first in the South, could provide a unique glimpse into the mysteries of job creation. The state offers up a bit of a paradox: How did an economy so successful at luring nonunionized manufacturing jobs end up such a basket case? Some 18.2 percent of South Carolinians now live in poverty, up from 15 percent in 2007, according to U.S. Census Bureau data. The state’s jobless rate is 11.1 percent, vs. 9.1 percent nationally.

South Carolina’s troubles coincide with a fresh controversy over the expansion of a Boeing (BA) plant in North Charleston. The National Labor Relations Board sued Boeing in April over its decision to locate a 4,000-job factory there, saying the move was intended to punish union activity at a major manufacturing operation in Washington State. Republican candidates have pointed to the dispute as evidence that the Obama Administration is choking job growth. Mitt Romney called the action “an assault on business” and a “political payback” to unions that sent campaign contributions to Barack Obama in 2008. “It’s like the Obama Administration can’t come up with anything else to stifle business growth in this state,” says Lewis F. Gossett, president of the South Carolina Manufacturers Alliance.

South Carolina joined the ranks of company-friendly right-to-work states in 1954, outlawing business contracts that require union membership or dues, according to the U.S. Labor Dept. Nineteen years ago, when BMW announced a new nonunion factory off Interstate 85 in Spartanburg, officials in the state envisioned an economic rebirth. The world’s largest maker of luxury vehicles would transform the ailing city into a “Mecca of foreign investment in the United States,” predicted The Independent of London.

BMW now employs 7,000 workers, much more than the 4,000 promised in the 1990s, says spokesman Max Metcalf by e-mail. The automaker has attracted more than 40 suppliers to the state during that time. BMW’s South Carolina plant directly or indirectly supported 23,050 jobs in 2007 and 2008, generating $1.2 billion in wages, according to a study by the Darla Moore School of Business at the University of South Carolina in Columbia. The automaker’s employees at the plant in Spartanburg accounted for 2.2 percent of the state’s manufacturing employment, the study said.

Some of the newer jobs in the state, including hundreds at BMW, have a downside. They are temporary and pay slightly less than permanent positions. At BMW, entry-level temporary workers earn $15 per hour, compared with $15.50 for permanent workers, according to Metcalf. The company needs the flexibility to respond to demand, he says, and recently moved many temporary workers to permanent status.

Even as South Carolina trumpets coups like Boeing and BMW, its cool relationship with organized labor has depressed its economy, says Chris Kromm, executive director of the Institute for Southern Studies in Durham, N.C., which tracks social issues in the South. “There’s been this kind of undertow of low-wage jobs all along. There have been successes in luring industries, there’s no question about that. But it brought an overall downward pressure on wages.” The state’s median income was $42,018 in 2010, vs. $50,046 nationwide.

So did South Carolina’s anti-union policies backfire? Labor economists are as divided on this issue as the politicians. A study by Michigan’s Mackinac Center for Public Policy, a free-market think tank, found that over the past decade, right-to-work states enjoyed faster growth in household disposable income, wages, and cumulative employment than union-friendly ones, according to Paul Kersey, the group’s labor policy director. Granted, wages today are still comparatively low, but “these are states that were poor before the laws,” says Kersey.

Gordon Lafer, an associate professor at the University of Oregon’s Labor Education and Research Center, calls the Mackinac numbers statistically meaningless, since they don’t control for other incentives such as tax breaks and even the state’s warm weather, which also attract employers. Lafer found that right-to-work laws “do nothing—zero—” to attract jobs, while depressing wages by an average of $1,500 annually, after adjusting for cost of living. Lafer also notes that the jobs that right-to-work laws attract tend to be portable and are prone to being moved to other states or shipped overseas. This back-and-forth over whether right-to-work helps or hurts will continue, and be used by Presidential candidates to score political points. But to the thousands of workers without jobs or struggling along on low wages, the whole debate is academic.

The bottom line: South Carolina’s 11.1 percent unemployment rate and low wages are sure to be issues in the state’s upcoming primary.

Newkirk is a reporter for Bloomberg News in Atlanta.
Bass is a reporter for Bloomberg Government in New York.

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