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Economist takes local conservative to school again on unemployment insurance

Dean Baker [1]Earlier this week, we cross-posted a brief essay [2] by one of the nation’s best economists, Dr. Dean Baker of the Center for Economic and Policy Research [3], in which he thoughtfully and professionally dissected and demolished the claims made by a Raleigh conservative think tanker in a Wall Street Journal piece. The think tanker’s central claim was that the state’s harshest-in-the-nation cuts to unemployment insurance had spurred all kinds of wonderful economic results in North Carolina.

Apparently not content to be put in his place just once, the think tanker posted a fairly snarky attempt at a response [4] yesterday and today, with an almost audible virtual sigh, Baker took to his keypad (and the CEPR blog) to provide a few more lessons in basic economics. We’ve cross-posted his addendum [5] below:


I see John Hood has replied to my post. Apparently he thinks that if we play games with the start and end dates we can say cutting benefits worked.

Okay, I don’t know what games they play in North Carolina, but let’s just remember what is at issue. The argument for cutting benefits was that if the state pushed people off unemployment insurance (UI) they would be motivated to get a job. We know that North Carolina pushed lots of people off UI. The question is whether there is any evidence this led more people to get jobs.

That gives us two numbers to focus on, how many people were thrown off UI, and how many extra jobs North Carolina has compared to other states. As noted above, the story on the latter is pretty clear. There is no evidence of better job growth in North Carolina than in comparable states over the last year. Let’s look more closely on the numbers of people thrown off the UI rolls in North Carolina.

We can get the numbers of people thrown off UI directly from the North Carolina Department of Commerce. They tell us that in May of 2014, 42,382 workers were receiving UI benefits. In May of 2013 the number was 90,858, a decline of 53.4 percent. By comparison, the number of people receiving benefits in the country as a whole fell by 10.4 percent over the same period.
This means that North Carolina removed roughly 32,000 more people off UI than if it had just followed the same pattern as the rest of the country. This is equal to roughly 0.8 percent of the jobs in the state as of May 2013, which is how much more rapid job growth we would have to see in North Carolina than in comparable states if we are to believe that the additional workers thrown off UI got jobs. As noted in my initial post, there is no evidence of more rapid job growth in North Carolina than in comparable states over this period, which means we conclude that the vast majority of the people who lost UI benefits did not find jobs.

Hood is apparently unhappy that I took May to May comparisons. I confess, I took these months because it is the easiest data to grab because every publication gives the prior year’s numbers. Therefore the May 2013 numbers are right next to the May 2014 numbers.

But the year over year numbers also have the nice advantage that we don’t have to worry about the seasonal adjustments. We know that more people are working in summer months than the winter months and fewer are unemployed. Most of our data are adjusted for this seasonal effect, but the adjustments are far from perfect, especially at the state level. If we use the same month, then it is much less of a problem.

Hood argues the start point of May is unfair because the state didn’t put its tighter rules in place until July.[1] This shows a poor understanding of the policy he supports. Unemployed workers read newspapers and listen to news. Most people receiving benefits undoubtedly knew that they would face tougher rules starting in July. If taking away benefits was going to motivate people to get jobs, then the new rules already should have been having this effect by May and certainly June of 2013.
Hood also wants us to end the comparison in December of 2013. That makes no sense since the differential impact of the UI policy in North Carolina and the rest of the country continues to the present. In other words, the state has far fewer people collecting UI benefits than if it had followed the same policy as the rest of the country.

In short, the story is very simple. North Carolina’s UI policy led to a sharp reduction in the number of people collecting unemployment insurance relative to the rest of the country. There is no evidence that it has had more rapid job growth as a result of this policy. We can therefore conclude that most of the people who lost benefits did not get jobs.

Due to quirkiness of the data, North Carolina shows a fall in employment from May, 2013 to July, 2013 of 5,448, the equivalent of a drop in employment of roughly 200,000 nationally. This is almost certainly an error in the data, just like the gain in employment of 31,316 shown for October to December of 2011 (the equivalent of 1.2 million newly employed workers nationally) was almost certainly an error in the data.