In the early 1990s, North Carolina was the most industrialized state in the United States. We can be state this more precisely: the share of workforce employed in manufacturing was greater than found in any other state. Since that time, however, North Carolina has slipped precipitously in the rankings to about 10th this year.

Manufacturing workers have made up a smaller and smaller share of the US workforce over the last 20 years, as productivity growth exceeded demand for the products. However, the number of workers in light manufacturing has fallen even more rapidly. Light manufacturing includes products such as textiles, apparel and furniture, and these are the products in which North Carolina specialized. As the relative share of employment in light manufacturing fell, so also did the relative employment in manufactures in North Carolina.

Why was there a disproportionately large downturn in light manufactures production? An important explanation comes from the growth of competing light manufactures production in developing countries, especially India and China. North Carolina producers often found themselves on the losing end of this competition.

• The Evolution of the North Carolina Economy. Patrick Conway, testimony to US-China Economic Commission, 2007.
• Trouble with Trade. Paul Krugman, in 28 December 2007 New York Times.
• The United States in a New Global Economy? chapter 1 in Free Trade Under Fire, Douglas Irwin, 2007.
• Technology, not Globalization, Driving Wages Down. Jagdish Bhagwati, Council of Foreign Relations, 2007.
• Fear of Offshoring: Alan Blinder, 2005.

1. What is the relation between productivity and wages that leads to a loss of competitiveness for North Carolina firms relative to developing-country firms?
2. Use Bhagwati's argument, but adapt it to unemployment. How does rising productivity in both North Carolina and abroad, but faster growth in productivity abroad, lead to unemployment through two channels?
3. Suppose our North Carolina firms win the competition with foreign firms by increasing labor productivity in their plants. What impact does that have on unemployment in North Carolina?
4. What types of jobs does Blinder suggest can be "offshoring-proof" in North Carolina?

The Economic Development officials in Surry and Mecklenburg Counties are understandably gun-shy at this point; they have been successful in bringing manufacturing businesses to the counties, but those businesses don't seem to be able to withstand the competition from foreign producers. They operate for a few years and then shut down, leaving workers once again out of work. Provide these leaders with a recipe for the jobs they want to be creating: high pay, not environmentally or physically dangerous, not at risk of closure and not at risk of being offshored.

• What types of jobs are these?
• How do they mesh with the existing workforce in the counties?
• Does this decision have to be either/or? (i.e., either offshoring or domestic workers?) Is there some way to combine the urge to offshore with the creation of North Carolina jobs?