Bigger paychecks bode well for South

ECONOMY WATCH

May 10, 1994|By John E. Woodruff | John E. Woodruff,Sun Staff Writer

Maryland, the state that Union armies strong-armed into being "Northern" despite its people's widespread southern sympathies in the Civil War, has been a "Southern" state for most of this century in U.S. government statistics despite its Northern-style smokestack economy.

For Marylanders, one of the least-studied of those statistics provides a glimpse inside an economic sea change that has been at work for decades but may be gaining momentum as the nation's economy recovers from recession.

That figure is the Employment Cost Index (ECI), which the Bureau of Labor Statistics uses to measure how much companies pay workers in the country's four major regions, the Northeast, the South, the West and the Midwest.

After trailing the rest of the country for most of the 13 years that BLS has kept the figure, labor costs in the South have begun to increase about the same rate as the national index, which economists take as a sign that recovery in the South may be as healthy as in any of the four regions.

"This puts the South in a very advantageous position for the moment" to recruit new industries, says Alan Paisner, regional commissioner of the BLS.

The South "starts with low labor costs and relatively little unionization, and now incomes there are keeping pace with national growth but not outstripping it," so that workers will feel improvements in their prospects but the region will keep its competitive edge, Mr. Paisner said.

But labor costs, widely discussed as a key to the South's growth, may no longer fully explain what drives the region.

For Maryland, which performs economically like a Northeastern state even though it is lumped in with Alabama and the Carolinas when the regional ECI is calculated, there may be important lessons in the reasons why the region forges ahead while the state continues to lag the national recovery.

"Wage and benefit costs and unionization are such an old story and so empty today," says Michael A. Conte, director of the University of Baltimore's Center for Regional Economic Studies. "If the dollar cost of labor were the paramount factor, everybody would have moved to Mexico by now to take advantage of wages that run a tenth of the United States'. But in fact, some companies that tried Mexico came back when they couldn't get telephones and couldn't get goods delivered."

"The critical issue is the productivity of labor, not the cost, and the success stories are the Southern states like North Carolina, which is aggressively pursuing the productivity factor," Mr. Conte says.

North Carolina is investing $2 million in a fiber-optic network "so that even a small business with, say, eight people, will be able to log onto a regional supercomputer and get the benefit of its capabilities," he said. The state has also established "a partnership between the state and businesses that trains workers to the businesses' specifications," he said.

Mr. Conte carefully stops short of criticizing Maryland's own economic development program, but he does not hesitate to name government policy as a factor in the gap between the state's performance and the region's.

"What is relevant is the productivity of labor and the overall environment created in the state, and that is where the South is going to have a powerful growth advantage well into the second half of this decade," he said.

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