Economist: NC Unemployment drop may be tied to benefits changes

by Rick Rothacker, Charlotte Observer, December 24, 2013.

North Carolina’s unemployment rate has fallen more than other states’ this year, and changes in the state’s unemployment system may be a contributor, Wells Fargo Securities economist Mark Vitner wrote in a report Tuesday.

The state’s unemployment rate started the year as one of the highest in the country but has fallen two percentage points from a year ago to 7.4 percent in November, according to state commerce department data. The state’s unemployment rate is now .4 percentage points higher than the U.S. average, compared with 1.6 percentage points higher in November 2012.

In July, North Carolina decided to end federal extended unemployment benefits, a move that meant the loss of unemployment insurance payments for more than 70,000 North Carolinians. Economic literature, Vitner wrote, has suggested that such benefits have two impacts on the labor force: They raise the required wage for someone to take a job, and they keep people seeking jobs because it’s a requirement of receiving benefits.

In his study, Vitner found evidence that job seekers who had used up their benefits took jobs because the civilian employment in the state rose by 39,400 over the past three months. In comparison, in the first eight months of the year, employment declined by 45,100.

“A cursory review ... suggests the employment effect has been more powerful, as civilian employment has reversed an earlier downward slide,” Vitner wrote in the report.

Meanwhile, the civilian labor force, which is the number of people in the state who have jobs or who are seeking jobs, has declined by about the same rate in the past three months as earlier in the year, Vitner found. This decline indicates some job seekers are still dropping out of the workforce altogether, which also reduces the unemployment rate.

The experience in North Carolina could be soon reflected nationally, as federal funding for extended unemployment benefits ends this week, Vitner wrote.

“If Congress does not extend them, the same results seen in North Carolina may begin to show up in the national unemployment figures,” he said.

The McClatchy Washington Bureau reported earlier this week that plans for a three-month extension of emergency unemployment benefits is gaining momentum in Congress, with the Senate scheduled to take a key procedural vote on that extension when it returns Jan. 6.