NC legislative committee takes yet another misstep on unemployment insurance

This morning, the Finance Committee of the North Carolina House approved House Bill 107, which, among its largely technical provisions, would make two significant changes to state unemployment insurance policy: 

  • it would reinstate work search requirements for individuals making non-COVID-19-related unemployment insurance claims, and 
  • it would hold the base tax rate for employers at just 1.9%, rather than following the planned increase that currently contained in state law. 

The decision to hold employer tax rates at the current low rate is a mistake. 

Back in 2013, when lawmakers and Gov. McCrory approved House Bill 4 — the bill that imposed significant cuts to worker benefits — they also included a trigger that would have raised the State Unemployment Tax Act (SUTA) base tax rate in order to ensure that employer contributions into the state Unemployment Insurance Trust Fund are sufficient to keep the system solvent — a major priority of legislative leaders.  

At present, North Carolina’s tax rate is the fourth lowest in the country.  

Meanwhile, as national experts, state researchers, and media outlets have repeatedly noted, North Carolina has the least effective unemployment insurance system in the country because it serves too few jobless workers, with too little wage replacement for too short a time. 

A glance at the latest data from the third quarter for southeastern states further demonstrates how our program has fallen behind. North Carolina trails only Florida for the number of people exhausting state unemployment insurance before finding a job, is only barely ahead of Louisiana, Mississippi, and Tennessee in the average weekly benefit amount it pays, and in 2019 was worst in the country in terms of the number of jobless workers who receive unemployment insurance.

Engaging in a “race-to-the-bottom” competition with other southeastern states when it comes to supporting the economy is not the right path for our state. If we have any hope of improving what research shows has been a very unequal recovery, North Carolina policymakers should be focused on driving policy toward achieving more equitable outcomes, and be deeply concerned that their policy choices are driving a wedge between people and critical supports. 

Policymakers should instead follow the expert advice of a wide array of economists to build an unemployment insurance system that: a) minimizes the harm to families caused by job losses, and b) stabilizes the economy by helping to maintains consumer spending. 

At present, North Carolina is failing on both counts by maintaining a system that: 

  • provides 14 fewer weeks than the standard 26 weeks of state benefits, 
  • pays extremely low benefits that, on average provide just 23 cents per dollar of the average worker’s in prior wages (the national standard is at least 50 cents), and 
  • reaches less than 9% of those who are jobless, compared to the standard of reaching at least 50 percent of the unemployed. 

A broken unemployment insurance system increases hardship, worsens health outcomes, reduces lifelong earnings and economic mobility for people, and doesn’t do enough to stabilize consumer spending — a key to supporting demand for goods and services of businesses (i.e. employers) and supporting economic recovery.?The National Employment and Law Project noted that due to its shorter benefit duration alone, a typical North Carolina jobless worker could have received as much as $24,000 less in unemployment insurance benefits over the course of the last recession thanks to the 2013 cuts. 

The bottom line: this legislation ignores the desperate need to repair and improve the system for jobless workers (click here for a list of simple and necessary policy changes that lawmakers should enact in 2021) and, indeed, erects another barrier by reviving administratively costly work search requirements. 

By keeping employer taxes low while refusing?to improve things for workers and their families, lawmakers have signaled that working people will continue to be an afterthought in legislative policymaking and are doubling down on an economic approach that will continue to serve us all poorly. 

Alexandra Sirota is the Director of the N.C. Budget and Tax Center. 

 

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