By Mike Walden

As the end of the year holidays approach, it is quite normal for me to be concerned about the pie. By the way, my favorite is the lemon meringue. But today’s column is about a different kind of pie – the economy pie.

The economic pie is a term often used to describe the size of the economy. Over time, economists and others follow the growth of the economic pie. The shares of the pie then refer to the share of individuals in the overall economy and its changing size. Is everyone’s slice growing, or some people get bigger slices while others get stuck with smaller slices. The formal term for brackets is “income distribution”.

These two concepts – economic growth and income distribution – are at the heart of many of our political debates on topics such as taxes, regulations, government spending, and financial support for households and businesses. Often in these discussions, some groups will place more emphasis on economic growth, while others will see income distribution as the dominant concern.

But before we can examine and debate economic growth and income distribution, we need to have good measures of it. Recently, I set out to develop such metrics for North Carolina.

I developed an index of economic growth of the state based on three individual measures: the growth rate of the value of the total production of goods and services (“GDP” for technical readers), the growth rate of income per person and the growth rate in jobs. The first two measures are adjusted for inflation so that they are calibrated to dollars of equal purchasing power over time.

The generation of an income distribution index was more complex. First of all, I divided the industries in which people work into three groups: high wages, middle wages, and low wages. Fortunately, there was consistency in the groupings over time. From these groups, I created an index based on several measures comparing the average earnings in each group as well as the number of workers in each group. Increases in the incomes of low-wage and middle-wage workers compared to high-wage workers, as well as the increase in the number of high and middle-wage workers compared to low-wage workers, were seen as indicating an expansion of income distribution.

I call the North Carolina Economic Growth Index, NC-GROWTH, and I call the state income distribution measure, NC-SHARE. I was able to generate both indices annually from 1997 to 2020.

What do the clues tell us about the growth of North Carolina’s economic pie and the distribution of that pie to the well-paid, middle-paid and low-paid workers?

The good news is that NC-GROWTH was positive for 16 of the 24 years from 1997 to 2020. NC-GROWTH was negative in the near years or during a formal recession, such as in the early and late 2000s, as well as in 2020. , the year of the COVID-19 recession.

The results for NC-SHARE are more complicated. The index fell on a trend from 1997 to 2016, mainly due to a shift from middle-paying jobs to low-paying jobs. However, since 2016 and 2020 inclusive, these trends have reversed and NC-SHARE has increased. There has also been a modest increase in the relative earnings of low-paying versus high-paying jobs in recent years.

The declines in NC-SHARE over the period 1997-2016 do not imply that incomes from low-paid jobs decreased while incomes from well-paid and medium-paid jobs increased. In fact, the average earnings of all three groups increased over the period, both before and after adjusting for inflation. However, the average earnings of well-paying jobs increased more than the average earnings of the other two groups.

My research revealed another interesting finding regarding the relationship between the rate of economic growth and the distribution of that growth. I found a strong relationship between one of the growth measures – the growth rate of inflation-adjusted GDP (gross domestic product) and the Income Distribution Index, NC-SHARE. A statistical measurement showed that more than a third of the changes in GDP and NC-SHARE were related, meaning they evolved together (in technical jargon, they are “correlated”). Correlation does not necessarily imply causation, but some economists argue that faster economic growth is the best way to distribute income gains among all workers.

Alternatively, there are other economists who claim the opposite – that the distribution of income gains among more workers, and especially those at the lower pay scales, motivates harder and more productive work and therefore an economic pie. faster growing.

I will not resolve this disagreement here. But I will say that economic growth and the distribution of that growth in our state is very important. But is one more important than the other? You decide.

Walden is William Neal Reynolds Professor Emeritus Emeritus at North Carolina State University.