NC Budget and Tax Center

New research points to critical role of unemployment insurance in lessening hardship from job loss

JP Morgan Chase has a study out that shows the powerful role of unemployment insurance based on a review of a unique dataset:  their customers’ financial behavior.  The findings are particularly telling for North Carolina where policymakers have moved in the opposite direction of modernizing the system, dismantling many of the best practices the state had in place when they overhauled unemployment insurance in 2013 (and many that the JP Morgan Chase study highlight as important).

As we have written about in many other spaces, the result of such changes in North Carolina has been an unemployment insurance system that is providing too little support for too few weeks to too few of the state’s jobless workers.

The JP Morgan Chase study is important to providing further evidence that job loss without unemployment insurance takes a greater toll on consumer spending—the key to America’s economic engine.  Here are key findings:

  • Unemployment insurance softens the drop in family income from job loss to just a 16 percent drop compared to a 46 percent drop in monthly income without unemployment insurance.
  • The higher wage replacement that a state provides through unemployment insurance the lower the drop in spending. Unemployment insurance payments reduce the spending drop associated with job loss by 74 percent.

The researchers note that there is a trade-off between reducing the economic hardship of jobless workers and shortening the time to re-employment.  What is missing from this analysis, however, is a documentation of whether the return to work results in a return to jobs at commensurate skill or earning levels.  In fact in reviewing data from Florida the authors of the report note:  “Cross-state evidence suggests that the faster reemployment in Florida does not necessarily lead to improvements in job quality.”  And this is an important point: it is impossible to evaluate this trade-off without understanding whether people moving to work maintain elevated levels of hardship even as they work and thus require other forms of public subsidy to truly meet their needs.

Based on what we know from this research—and decades of rigorous academic work—it seems clear that the economic harm is real to people who lose their jobs through no fault of their own.  It also extends to their broader communities as these workers are pushed into poverty and out of the labor market reducing the stabilizing effect of their purchasing power to the local economy and local businesses.

Time for the Governor and General Assembly to get to work on a fix to their damaging choice on unemployment insurance.  A policy choice that has held back our state’s economy from delivering the benefits of an expansion broadly because it focused on delivering tax cuts to employers over strengthening supports to jobless workers and their communities.


One Comment

  1. Tony Dockery

    September 20, 2016 at 12:37 pm

    McCory has reduced the rates that corporations and business in NC have to pay for unemployment insurance…..Thats why we have major reduction in benefits..,.,McCory is a working mans nightmare…He doesn’t care about NC citizens he never has he is strictly a corporate moron who serves his masters of deception. The only fix for NC is to get rid of all the republicans before they destroy whats left of our great state.

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