Missing Workers, NC Budget and Tax Center

Yesterday’s release of the latest labor market numbers for July 2014 continues to show a slow recovery of jobs in North Carolina. Job growth, while occurring, is insufficient to ensure that the state’s growing working age population has employment opportunities. North Carolina has still not replaced the nearly 300,000 jobs lost during the Great Recession. In fact, the state’s job creation over the year (2.1 percent) is not significantly different than that for the nation (1.9 percent) over the same period. The state’s jobs deficit also remains high at 470,000, and at the current annual rate of job creation will require five years to close.

In this context, here is the missing workers update for July 2014: there still remain more than 256,000 North Carolinians who are missing from the labor force.  These are folks who would be seeking employment if job opportunities were stronger. If these workers were counted in the unemployment rate, that rate would be 12 percent rather than the official unemployment rate for July 2014 of 6.5 percent.

BTC - Missing Workers July 2014

NC Budget and Tax Center, Uncategorized

One of the fundamental claims made about North Carolina’s cuts to unemployment insurance payments was that such a policy change would create a greater incentive for jobless workers to take available jobs and employment in the state would rise as a result.

The Economic Policy InstituEPI Cuts to Unemployment Insurance Benefitste (EPI) posted a great graphic once again demonstrating that there is no evidence to suggest such a causal effect on employment from unemployment insurance cuts.  In this case, researchers at EPI compare North Carolina’s employment levels to our neighbors who are likely to have experienced similar macro-economic conditions. Their finding:

As the graph shows, North Carolina’s prime-age EPOP (employment to population ratio) began rising rapidly in the months prior to the duration cutback, began falling steadily just two months after the duration cutback, and differed very little in behavior after the cutback from prime-age EPOPs in surrounding states.

Bottom-line: North Carolina’s labor market has not improved as a result of unemployment insurance cuts.

NC Budget and Tax Center

Over the course of the past three days, nearly 10,000 North Carolinians signed a petition calling on legislators to address the rising cost of the tax cuts that passed last year.  Tax cuts that primarily benefit wealthy taxpayers and profitable corporations.  The petition was delivered yesterday to legislators and yet early this morning the Senate approved a budget that fails to stop future tax cuts or address the growing gap between the priorities of the state and the adequacy of our revenue system.

PetitionDelivery

As the House debates the budget today, it is time to turn to the Governor for leadership on this issue.  He had early in 2013 committed to revenue neutral tax reform but as is increasingly clear the plan passed last year is not revenue neutral and is growing in cost.  The income tax cuts alone are projected to cost more than $5 billion over five years.  And it is quite possible, as we have written before, that the revenue shortfall for this fiscal year could be as high as $600 million.  That would mean the total tax plan would lose the state $1 billion in revenue each fiscal year.

Without those dollars it will be difficult for policymakers to meet the priorities of North Carolinians, sustain their plans for a teacher pay raise or ensure that North Carolina is on competitive ground and delivering a high quality of life to all.  Let’s hope the House rethinks the budget and if not that the Governor will lead the state down a more fiscally responsible path.

NC Budget and Tax Center, Uncategorized

This week has already featured several prominent pieces on North Carolina’s unemployment insurance cuts with the final assessment that many jobless workers have likely been harmed and a more balanced approach to trust fund debt based on evidence not ideology was needed.

On Sunday, the New York Times featured a piece by Justin Wolfers of the Brookings Institution that made clear the evidence just isn’t there to support claims made that North Carolina is experiencing an economic boom and job growth resulting from the unemployment insurance cuts. And while he correctly points out that there is too little evidence to draw conclusions about what is happening in the economy, Wolfers fails to acknowledge that the harm to jobless workers from the cuts is significant enough to raise alarm.

Yesterday, Jared Bernstein of the Center on Budget and Policy Priorities followed up in the Washington Post by highlighting this very fact: there has been very real harm from the cuts created for jobless workers who now have fewer weeks to find a job in a labor market with too few and fewer dollars to meet basic needs, as the Budget & Tax Center documented in our recent report.

And then the Economic Policy Institute released a report looking across the country at states that cut unemployment insurance benefits. The report concludes that these decisions were not fiscal in nature but political and have had no appreciable impact on labor force improvements and been completely lopsided in their approach, effectively requiring jobless workers to pay employer’s debt. Here are a few of their key findings that are illustrative for North Carolina:

  • States with solvent unemployment insurance trust funds (the funding mechanism for the unemployment insurance system paid into by employers) before the Great Recession were less likely to borrow from the federal government.  A states’ experience was not a differentiating factor for states borrowing activities.
  • States that remained solvent had not cut UI-dedicate state taxes nearly as deeply as did other states during the 2001-2007 period of recovery and expansion.
  • Eight of 35 states chose to address their unemployment insurance trust fund debt with cuts rather than taking a balanced approach. What most of the eight states share is a recent history of not supporting safety-net programs not more drastic fiscal challenges.
  • Across the eight states, unemployed workers lost an average $252 per week of curtailed benefits just so states could save roughly nine cents per covered worker per week in UI-state taxes.
  • There was no visible improvement in state labor market outcomes—when looking at employment-to-population ration—following cuts to UI duration.

Bottom line from all this national attention, North Carolina policymakers made the wrong choice and jobless workers are being hurt as a result.

NC Budget and Tax Center

Last week as the Budget & Tax Center released its analysis of the impact of unemployment insurance changes on jobless workers one year later, the Department of Commerce Employment Security Division announced that the unemployment insurance debt will be paid down early.

The resolution of the debt in August 2015 rather than November 2015 will mean that employers will no longer have to pay an additional federal tax that resulted when the Trust Fund came due for the following year. That federal tax represented the primary contribution employers were making to address the debt that was created as a result of tax cuts that they received in the 1990s and the historic job loss of the Great Recession.

As we wrote about in our report released last week, the vast majority of the savings that allowed for this accelerated repayment came from benefits cuts that primarily have reduced the maximum available weeks and the average weekly benefit amount. Both of these changes have hurt jobless workers as they have fewer dollars to make ends meet and continue their job search.

BTC - Changes to UI Benefits

Moreover, because jobless workers have fewer dollars to spend in local communities, these cuts have a ripple effect in local economies. Estimates suggest in this recession and recovery that for every $1 of unemployment insurance payments, $2 in economic activity is either sustained or generated. Each month the fewer dollars for jobless workers is impacting their spending and ability to participate in local economies twofold.

This economic impact and the harm to jobless workers and costs to the state to help these families in other ways are reason enough for policymakers to change the most harmful aspects of current law. By delinking the number of weeks from the unemployment rate to 26 weeks like the majority of states offer and by changing the benefit calculation formula to the two highest quarters of previous earnings while also seriously reforming the state financing of unemployment insurance through a forward financing model, the system can be put back into balance and the debt can still be repaid.