Tillis gets it wrong on Federal unemployment insurance extension

In his opening session press conference today, House Speaker Thom Tillis reiterated his desire to move an Unemployment Insurance (UI) reform bill through his chamber that would effectively result in cutting off roughly 80,000 of the state’s long-term unemployed workers from a badly-needed extension of federal unemployment benefits. Unemployment benefits, said the Speaker, were never intended to be a long-term entitlement, and should never have been extended anyway, since doing so will drive up the federal budget deficit.

Given the history of the UI program, persistently high unemployment and the relatively low cost of federal UI benefits to the taxpayer, these ideas are extremely misguided and will result in significant—and unnecessary—hardship for North Carolina workers.

Under the Fiscal Cliff bill enacted earlier this month, the federal government extended unemployment benefits to the nation’s long-term unemployed for another 26 weeks. Under the guidelines of the program, the federal government offers extended benefits to unemployed workers once their state-funded UI benefits run out. In order to ensure that states don’t take advantage of this extension by attempting to shift costs to the federal government, the Fiscal Cliff bill included a provision that prohibits cuts in state benefit levels during the period the federal extension is in effect—in this case, through December 31, 2013. According to this provision, any state-level benefits cuts will result in the state’s workers losing access to the federal extension.

But the end of the year isn’t soon enough for Tillis and other legislative leaders. They’ve committed to passing reforms to the state’s UI system that attempts to pay off the $2.5 billion debt owed to the federal program, but does so by mandating some of the deepest cuts to unemployment benefits anywhere in the country—effective July 1, 2013. Because the plan involves benefit cuts during the federal extension period, the effective date of the plan will result in the loss of extended federal benefits for as many as 80,000 of North Carolina’s long-term unemployed.

Contrary to Tillis’s belief, the federal benefits extension is important for the state’s workers, the overall economy, and is extremely cost-effective for the federal taxpayer. Let’s take his arguments one by one:

Extended federal benefits are designed specifically to counteract periods of persistently high unemployment through time-limited wage replacements; they are not indefinite entitlements. As long as unemployment remains high, federal benefits play a critical role in supporting unemployed families until job opportunities become available. These wage supports also play a vital role in ensuring an adequate customer base and demand for private sector businesses. It is for this reason that recent research suggests that the state benefits cuts will reduce North Carolina’s economy by $700 million per year, even without considering the loss of extended federal benefits.

Our persistently high unemployment rate is due to the fact that there are almost 3 jobless workers competing or every one available job opening, not workers subsisting on UI benefits instead of finding a job.  In fact, unemployed workers outnumber available job openings by 3-to-1, and the state needs to create over 520,000 new jobs just to replace those lost during the Great Recession and to keep up with population growth.  Until more job openings become available and the jobs deficit drops, cutting unemployment benefits will not bring down the unemployment rate, as Tillis has suggested in the past. Instead, it simply cuts unemployed workers off from any means of supporting their families and spending to support private sector businesses. Given this structural problem, cutting benefits in this way simply undermines the whole point of the UI system.

Ending federal extended benefits for North Carolina will have no appreciable impact on the federal budget deficit, but will certainly weaken the program’s ability to promote economic growth.  At a projected 25 million per week for 26 weeks, the extended federal benefits are expected to bring almost $650 million into North Carolina and cost the US Treasury about the same amount. Given that the federal budget deficit in 2012 rang in at about $1.2 trillion, this $650 million UI contribution constitutes less than one-tenth of one percent of the nation’s budget shortfall.  Given that mainstream economists from the Congressional Budget Office and Moody’s Analytics have all found that UI benefits provide a much bigger economic stimulus than cuts in marginal tax rates, ending these benefits in order to save less than 1 percent of the federal budget is penny-wise but pound foolish.

North Carolina needs and unemployment insurance reform plan that recognizes the critical role UI benefits play in encouraging economic growth. Enacting deep benefits cuts and ending federal extended benefits will only serve to perpetuate our state’s sluggish economic growth and persistently high unemployment.

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