N.C. Commerce Report Says State Labor Force Shrank 0.5% Over the Past Year

A Report North Carolina's Own Governor Wrote Against Himself

North Carolina's Department of Commerce gave its August 2026 economic report a headline no press office normally chooses: "The Incredible Shrinking Labor Force^[1]." The data behind it is blunt too. As of June 2026, 5,263,213 North Carolinians were working or looking for work — 0.5% fewer than a year before^[1]. That is the whole story in one number, and it comes straight from the state agency that answers to Governor Josh Stein, a Democrat.

The report lands next to a very different kind of news. Stein's office says more than 42,000 new jobs and $29 billion in investment have been announced in the state since he took office in January 2025^[3]. Site Selection magazine just ranked North Carolina first in the country for workforce development^[3]. A state can be shrinking its labor force and winning national rankings for building one at the same time — that tension is the real story here, and it is why the same numbers are being read so differently by people across the political spectrum.

What "Labor Force" Actually Counts, and Why That Matters

Start with the term the whole report hangs on. The "labor force" is not everyone who lives in North Carolina. It is everyone age 16 and older who is either working or actively job-hunting^[1]. A retiree does not count. A student does not count. Someone who has given up looking for work does not count either.

That last group is the key to understanding the debate. Commerce says two things are shrinking the pool. First, the number of people old enough to work is growing more slowly — the age-16-and-over population's monthly growth rate fell from about 0.2% in 2023 to just 0.1% by June 2026^[1]. Second, a smaller share of that pool is choosing, or able, to look for work at all. The labor force participation rate — the percentage of working-age people who are in the labor force — dropped from 61.4% to 58.6%^[1].

Those two forces get tangled together in every argument that follows. An aging population and a shrinking group of active job-seekers can look identical in the headline number, even though they mean very different things about the health of the economy.

The Number That Cuts Both Ways

Here's a fact that seems to contradict the "shrinking" headline: North Carolina's unemployment rate was just 3.7% in May 2026, a historically low figure^[5]. How can a labor force be shrinking while unemployment stays low?

The answer is mechanical, not mysterious. Unemployment is a fraction — the number of people without jobs, divided by the labor force. If people simply stop looking for work, they exit the bottom of that fraction entirely. They are not counted as unemployed. They are not counted at all. So a state can have a shrinking labor force and a falling unemployment rate at the exact same time, without anything getting better or worse for the people who left^[1][5].

That single mechanism explains why conservative commentators and progressive analysts can point to the same report and walk away with opposite conclusions. Free-market and business-aligned voices read the low unemployment number as proof the state is not in crisis, and argue the shrinking labor force is mostly a demographic story — an aging state, fewer working teenagers — not a policy failure^[9][5]. Commerce's own research backs part of that: more than half of the long-term decline in participation comes from the population simply getting older^[1][6].

The N.C. Budget & Tax Center, a progressive fiscal policy project, sees it differently. Its analysis is titled, without hedging, "NC's labor market continues to weaken. Bad policy choices are to blame^[7]." It points to manufacturing, which lost more than 1.5% of its jobs in 2025 — nearly 7,500 positions, concentrated in transportation equipment and electronics, sectors exposed to tariffs and federal contract cuts^[7]. The group projects 35,500 North Carolina jobs are at risk from further federal spending cuts, along with more than $3 billion in lost federal aid^[8]. Their underlying argument: when hiring freezes and factories cut shifts, people stop looking for work, and that shows up in the same participation number Commerce attributes to aging.

The Fastest Lever Nobody Wants to Name Directly

There's a third explanation sitting underneath both of those arguments, and it gets less airtime than either: immigration. Population growth from births takes 16 years to show up in the labor force — a baby born today doesn't become a worker until the 2040s. Migration is different. It shows up immediately^[6][11].

That is why the numbers keep circling back to it. Nationally, U.S. net migration turned negative in 2025 for the first time in at least half a century, and the national labor force has fallen by about 213,000 people since January 2025^[11][12]. Axios described the pattern plainly, running the headline "Immigration crackdown evident in monthly employment numbers^[12]."

North Carolina's own Commerce data lines up with that national story. In 2022, foreign-born residents in the state participated in the labor force at 68.6%, compared with 59.8% for the native-born — a meaningful gap^[6]. But Commerce's analysis found that roughly four-fifths of that gap is explained by something simpler than immigration status: immigrants in North Carolina tend to be younger, and younger people work at higher rates regardless of where they were born^[6]. A UNC Kenan Institute report goes further, warning that immigrant labor shortages specifically threaten the state's urban economies^[10].

So immigration enforcement removes exactly the demographic group — younger workers — that could offset the aging trend Commerce blames for most of the decline. Neither side disputes the mechanism. They disagree about how much weight to put on it, and that disagreement tracks closely with which side of the immigration debate each is already on^[9][10].

Two Economies in One State

Zoom out, and the state is really telling two stories about manufacturing at once, and both are true. Electrical equipment manufacturing — the sector that includes the new Toyota battery plant in Randolph County — added 2,800 jobs last year^[7]. At the same time, transportation equipment and computer and electronics manufacturing were among the state's biggest job losers^[7].

The Daimler Truck plants in Mount Holly are a concrete example of the losing side. The company filed notice in July 2025 that it would cut 573 jobs there, citing a sustained drop in truck orders, with the layoffs taking effect that September^[13]. Statewide, 116 official layoff notices have been filed covering more than 10,700 employees at 90 companies, and manufacturing is the single most affected industry, with 28 of those notices^[14][13].

None of that depends on resolving the argument over cause. An aging population, thin immigration, and a factory sector under cost pressure all push the labor force in the same direction, whether the accompanying press release chooses to name policy or blame demographics^[1][7].

What the Report Doesn't Resolve

Commerce closes its own report with a warning: North Carolinians should prepare for the possibility that the labor force keeps shrinking in the years ahead^[1]. That is a rare thing for a state agency to put in writing under its own governor, and it's arguably the report's most honest sentence — it commits to no villain.

The administration's response so far is to try to raise participation rather than wait for population growth to return. The Governor's Council on Workforce and Apprenticeships is aiming to recruit 50,000 employers and double the state's apprenticeship numbers^[4]. Whether that effort can outpace an aging population and a national immigration slowdown that neither Raleigh nor any single governor controls is the question the next year of jobs reports will actually answer^[4][11].