NC Budget and Tax Center

WARNing: Mass layoffs threaten local economies when state pulls back

Freightliner will lay off an additional 800 jobs in June which is the latest in a series of announcements this year of significant mass layoffs at one company. More than 7,000 mass layoffs have already been announced in 2016 and will take place over the course of the year. Whether temporary or permanent, they will ripple through communities as workers seek new jobs and try to meet basic needs while looking for work.

As you can see in the map below, the communities affected by the 2016 announcements to date span the state. The losses of small towns and cities represent a greater share of their workforce, even if the total numbers are less than major metropolitan areas.

warn map
For these communities, it will be important to support jobless workers so that the broader community can stabilize and pursue new or expand existing employment opportunities. North Carolina has a history of dealing with these mass layoffs and particularly the loss of employers and entire industries: unemployment insurance has always been one of the most critical tools for communities to be able to connect jobless workers to.

Yet state policymakers have so reduced the reach and effectiveness of the unemployment insurance that many communities will struggle to ensure a mass layoff doesn’t derail a community’s local economy and social fabric.

Here are a few key ways in which unemployment insurance, as it is currently operating, won’t be as effective in the face of mass layoffs.

  1. The number of temporary mass layoffs could have been reduced before they even happened if North Carolina had worksharing. Work sharing allows an employer to reduce the hours of all or some workers instead of laying off a portion of the workforce. Workers with the reduced hours are then eligible for partial unemployment benefits to supplement their paychecks. For example, instead of laying off five workers, an employer can reduce the schedules of 25 workers by 20 percent.
  2. Communities that are already struggling with high unemployment are hurt by the fact that unemployment insurance weeks are tied to the state unemployment rate. A flat 26 weeks as the majority of states in the country have adopted is the better way to ensure that jobless workers have the time that is needed to find the next job, and it doesn’t hurt workers because of where they live.
  3. Changes to the way that unemployment insurance is calculated has dramatically reduced the wage replacement of unemployment insurance, which means that jobless workers have too few dollars to meet their basic needs. The lack of effective wage replacement means that jobless workers are often facing financial crisis before they can find their next job. This leads to not just a greater tendency to take the first available job—regardless of the fit to their skills or prior earnings—but to greater psychological strain and stress which researchers have termed economic scarring.
  4. The unemployment insurance system had funding to support skills training and, while never sufficient, these dollars provided an important targeted pot of funds to support jobless workers who needed to transition to a new career or get trained for a new job. The Worker Training Trust Fund was eliminated in the 2013 unemployment insurance overhaul, and no state appropriation replaced those dollars to significantly invest in the skills training needed by jobless workers seeking to change careers.

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