In remarks at Monday’s economic forecast forum, a number of speakers sought to take credit for enacting policies in 2013 that they believe have contributed to big drops in the unemployment rate since last January, an idea that has been repeated in recent business news reports. Unfortunately, as much as we all want to make progress reducing North Carolina’s persistent joblessness, we’re still waiting for a jobs recovery to actually happen.
The unfortunate reality is that the unemployment rate may have fallen due to mathematical quirk in how it’s calculated, but unemployment itself still remains high due to anemic job creation and a contracting labor force.
Perhaps the most problematic claim involves the mistaken notion that the General Assembly’s deep cuts to unemployment benefits that took effect in June somehow spurred an impressive reduction in unemployment in the following months. According to this view, the “employment effect” associated with cutting unemployment benefits forces workers to find jobs that they otherwise would not have accepted because the wages of those new jobs pay less than what their old jobs paid. And since the unemployment rate has gone down, proponents of these cuts have argued that the employment effect must have worked in just this way.
There is a serious problem with this idea—it assumes that unemployed workers who lost their benefits in June went out and found jobs in August through November, a claim that just doesn’t bear up under serious scrutiny.
First, the argument compares apples to oranges by attempting to contrast unemployment from the first half of the year to unemployment in the second half of the year, a classic analytical error that ignores the fact that employment levels fluctuate throughout the year based on seasonal hiring patterns, making it extremely difficult to draw serious conclusions about the effects of policy on a month-by-month basis. While the seasonality issue can be partially addressed through statistical adjustment, most economists agree that the best way to measure short-term changes in employment is comparing year over year.
And when we compare the performance of the state’s jobs market in 2013 to previous years, it’s clear that the overwhelming majority of unemployed workers didn’t find new jobs—rather they became discouraged, gave up looking for work, and dropped out of the labor force. And since the unemployed rate doesn’t count these discouraged workers, it looks like unemployment has fallen when it really hasn’t. By November 2013, so many unemployed workers had become discouraged that the labor force contracted to the lowest levels since 2011.
As a result, it’s no surprise that the percentage of unemployed people actually increases when we include discouraged workers. While the standard unemployment rate in November was 7.4 percent, adding in discouraged workers increased the unemployment rate to 9.1 percent, according to the Bureau of Labor Statistics.
With three unemployed workers competing for only one available job opening in 2013, there just weren’t enough jobs for these unemployed workers to fill. That’s why North Carolina actually saw the total number of employed workers actually drop by 8,400 from January to November—the first time since the recession ended in 2009 that the state didn’t see net increase in the number of employed over this eleven-month period.
In fact, the state economy created just 37,700 jobs since January 2013, the lowest rate of job creation over this January-to-November period in four years and almost half the number of jobs created from January to November 2012. Clearly, cutting unemployment benefits did not result in a special job creation boom in 2013—especially when compared to the employment growth over the same period in the last four years.
So the reality of unemployment in North Carolina is very different than the drop in the unemployment rate would suggest: unemployed workers aren’t finding jobs, because there are no jobs. Rather, they’re simply giving up and dropping out of the labor force. Coupled with weaker job growth than in previous years, and it doesn’t appear that cutting unemployment benefits has been a resounding success for helping the economy.