NC Budget and Tax Center

Economists weigh in on NC’s wrong decision on unemployment insurance

A number of economists and analysts are sharing their assessment of what is really happening in North Carolina’s economy and it isn’t pretty.  And contrary to the talking points out there, the decision to drastically reduce unemployment insurance benefits as of July 1 is not improving labor market conditions in our state and could be making it worse.

Lawrence Katz, a Harvard economist, analyzed the change in labor conditions from November 2012 to November 2013 and found that 95 percent of the drop in the unemployment rate is from people dropping out of the workforce, a mere 5 percent from job creation.

This aligns with Allan Freyer’s recent analysis of metro trends in North Carolina which shows that the vast majority of improvements in the unemployment rate are because of declines in the labor force not increases in employment.

Andrew Brod, an economist at UNC Greensboro, found in his analysis that if the labor force remained just at the same level as it was in January, the unemployment rate would be 9.5 percent.  (It is important to note that the working age population since January has grown by 1 percent, not stayed the same or declined as has actually happened with the size of the labor force.)

Labor force declines despite working age population growth is troubling: once people leave the labor force they are unlikely to come back and if they do face significant challenges in making up for lost wages and career mobility lost.  And the economy as a whole suffers too when not everyone who can work has a job.

Matt Bruening with Demos Policy Shop debunked the use of the North Carolina case as a reason not to extend unemployment at the federal level by clarifying that the lack of jobs in our state is driving persistent unemployment.  After all there are nearly 3 unemployed workers for every job opening in the South. He also shares more detail on the profile of the long-term unemployed. Rather than the characterization that these are folks who don’t want lower wage jobs because they were high earners before, he suggests that many of these folks were working in low-skill, low-wage jobs already.

In today’s News & Observer, Patrick Conway reports that an estimated 50,000 residents and 12,500 children in North Carolina were NOT pushed into a poverty as a result of job loss because of unemployment insurance benefits.  That doesn’t bode well for the poverty rate in the next year as state unemployment insurance benefits are drastically cut back and federal benefits have gone away entirely.

The long-term unemployed face untold financial challenges that extend well beyond once there are jobs available in the economy and they are re-employed too.  From lost wages to the erosion of assets and savings to deteroriated health, the family and societal costs of unemployment should be mitigated. To do that, a strong unemployment insurance system is needed.  This means state policymakers understanding just what is going on in our economy and recognizing the solution lies in strengthening not gutting the unemployment insurance system.  And it means federal policymakers recognizing an emergency when we all see it and extending emergency unemployment insurance at the federal level temporarily.

4 Comments


  1. James

    January 9, 2014 at 7:12 pm

    Where’s Walden?

  2. LayintheSmakDown

    January 10, 2014 at 7:23 pm

    Fortunately real world results are proving the guy wrong.

  3. Alan

    January 10, 2014 at 10:47 pm

    Thankfully, real world results prove LSD et al wrong, wrong, wrong….

    I guess these “academics” must be enemy’s of the state, according to the right wing fanatics….

  4. LayintheSmakDown

    January 12, 2014 at 11:00 am

    Fortunately the rest of the world is not in that drug riddled alternate reality you are in. Thanks for the ad hominem attack on me rather than presenting actual facts. Fortunately for me, the recent news is showing things are turning to the good very quickly in NC.

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