NC Budget and Tax Center

A jobs recovery still waiting to happen

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.

PW 33-1 Fewer jobs created in 2013 than in 2012

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.

7 Comments

  1. HunterC

    January 8, 2014 at 10:49 am

    This is THE key point. The labor force is smaller, and that’s bad.

    NC’s population keeps increasing, but the labor force is decreasing. That is bad.

    Why anyone wants to claim credit for that is beyond me.

    When the unemployment percentage rate goes down because the denominator goes down, that’s bad. And that’s what we’re dealing with in NC whether in small or large counties.

  2. LayintheSmakDown

    January 8, 2014 at 8:37 pm

    Hunter, population growth is not necessarily bad without a 1 to 1 job increase. NC is a huge destination at the coast and in the mountains for retirees for example who may have significant income but no need of a job themselves. They do however result in some job growth as they demand various goods and services.

    I would suggest this situation has become the new normal as the regime in Washington has taken an active policy to suppress job growth in favor of less freedom and keeping more people reliant on the government. As we have seen in NC, when you do not have perpetual handouts you wind up being more likely to find a job or you make the decision on whether you actually are going to be in the workforce (meaning retire).

  3. ML

    January 8, 2014 at 8:47 pm

    I think it’s a reach to assume retires are responsible for the population growth. Good try LSD

  4. Alan

    January 8, 2014 at 8:47 pm

    LSD goes TIN FOIL HAT deep with this comment, “the regime in Washington has taken an active policy to suppress job growth in favor of less freedom and keeping more people reliant on the government”. That’s the sort of ignorant nonsense to be found over on Faux News and World Net Daily, the usual source for extremist propoganda.

  5. LayintheSmakDown

    January 9, 2014 at 2:45 pm

    ML,
    I am not saying that is all the growth, just one likely culprit and example among many. It would be impossible to list all the growth factors where there is not a 1 to 1 relationship. And it is not “tin foil hat” any more than the original post when you actually think logically about the reason something could or could not happen. Ok…how about children who move here……a wife who does not work……college students are included in “growth” and do not necessarily work…..undocumented residents…….and that is just another 4 without really thinking hard.

    But thanks for the ad hominem attack. It shows that my argument has merit in that you have nothing to rebut me other than a personal attack. Get used to this definition as I expect every comment you post will be accompanied by me calling out the fact.

    http://en.wikipedia.org/wiki/Ad_hominem

  6. ML

    January 9, 2014 at 4:04 pm

    I did not attack you. You proposed only one factor, retiree’s, as the culprit for the growth which I found irresponsible to suggest. Maybe you should have expanded upon the causes as you did in the follow up post. However, I do believe that while those 4 factors “off the top of your head” have contributed to the population growth/unemployment rate they did so only minimally.

    Your reasoning that an ad hominem attack means your argument has merit is also disingenuous because the fact of the matter, according to Lawrence Katz, a Harvard economist, who analyzed the change in labor conditions from November 2012 to November 2013, is that 95 percent of the drop in the unemployment rate is from people dropping out of the workforce, A MERE 5% FROM JOB CREATION.

  7. LayintheSmakDown

    January 12, 2014 at 11:23 am

    Look, if you are unable to think on your own after someone gives out a hypothesis that may be contrary to your liberal bias it is not my fault. I do not always have the time to type a long treatise so maybe before typing out a quick ad hominem attack…actually thing on what is being proposed. In this case you could have thought “ML…that is one thing type of migration that occurs….what other types of migration happen? Hmmm this could have some merit” But no I understand your government school education may have limited you….but come on.

    And Katz only serves to prove my point, but I will pose questions to see if you can figure it out. Who is most likely to drop out of the job market? What segment of the current population is huge and born in the 1945-1964 time frame, and what life event may be pretty significant at this point in many of their lives? If you are 60-65 and cannot get a job what is a likely alternative decision for you to make? Do you really have an option to drop out of the workforce if you are under ~65….the complaints around here are that welfare is never enough so then what are these people doing? Have you looked at the age demographic of Katz’s study to see where or what age the people are dropping out at? Maybe bring something to the table for once ML…