Unearned Income and Local Employment Growth in North Carolina: An Economic Base Analysis

Abstract

Economic base theory has long provided a basis for understanding regional growth and decline. Structural change, both economic and demographic, alters the composition of a community's economic base and influences rates of employment and population growth. The same factors affect the composition of income. In particular, unearned sources of income such as transfer payments, interest, dividends and rents have been increasing and now account for a significant proportion of total personal income. As such, they represent a substantial economic stimulus to many counties and a significant boost in local demand. This paper examines the impact of unearned income on employment growth within an economic base framework for the counties of North Carolina covering the 1969-1994 period. Results from pooled cross-section time series regression indicate that, among other things, higher proportions of local income from interest, dividends and rents are associated with faster annual rates of nonbasic employment growth, while slower rates of employment growth are associated with dependence on transfer payments.