Have benefits cuts reduced unemployment? No
Published January 26, 2014
by Allen Freyer, NC Justice Center, published in Charlotte Observer, January 25, 2014.
Debates about the economic policies adopted last year by Gov. Pat McCrory and the General Assembly have generated more heat than light. Nowhere has the discussion gotten more confused than with the impact of last year’s unemployment benefits cuts on the state’s jobless rate.
Although the governor has claimed that his policies are responsible for bringing down unemployment, a clear-eyed look at the state’s jobs picture tells a different story.
Far from being a banner year, 2013 marked the worst year for jobs since the end of the recession. While it’s true the unemployment rate has dropped, this is basically due to a quirk in how the rate is calculated. When the labor force – the pool of workers who have jobs or want jobs – shrinks, the unemployment rate will normally go down, even if real unemployment remains high.
This is exactly what happened in 2013. Over the past year, the labor force shrank by 2.5 percent to the lowest levels since 2011 at the same time our state’s population grew by 1 percent. Whenever your population is growing but your workforce is contracting, your economy is moving in the wrong direction.
If real unemployment were going down, you would expect to see the unemployed becomingemployed. We see the opposite – there were 8,400 fewer people employed in North Carolina last November than in January. So the unemployed didn’t move into jobs; they simply gave up and dropped out of the labor force altogether.
The governor and his allies tend to ignore the shrinking labor force and instead point to job creation in the months after unemployment benefits cuts took effect in July. There are two problems with this claim. First, it is inaccurate to compare employment in one part of a year to another part of the same year. Hiring naturally swings from month to month based on seasonal hiring patterns. As a result, it’s virtually impossible to tell whether employment changes from one month to the next were caused by a policy decision or by seasonal hiring patterns.
But the biggest problem here is our state’s actual record of job creation. From January to November 2013, North Carolina created just 37,700 jobs, barely half the 66,000 jobs created the year before, and still short of jobs created in 2011 and 2010.
Gov. McCrory may believe that cutting unemployment benefits will force unemployed workers to find jobs, but this falsely assumes there are enough jobs for unemployed workers to fill. There is still just 1 job opening for every 3 unemployed workers.
Gov. McCrory and legislative leaders need to recognize that the reality of unemployment in North Carolina is different from what the drop in the unemployment rate would suggest. Unemployed workers aren’t finding jobs because there are no jobs. Instead, thousands of workers are giving up and dropping out of the labor force. The cuts to unemployment insurance benefits mean that jobless workers no longer have the temporary support necessary to keep them connected to the labor force and making ends meet. In turn, this means fewer customers and lower consumer spending for North Carolina’s businesses.
Unemployment insurance is a partial, temporary, and essential support for jobless workers and the economy; cutting it harms families and careers as well as the recovery. Policymakers should rethink these cuts and move to invest in the re-employment services that will help connect workers to available jobs while supporting job creation directly.
They should support new business start-ups, consider subsidized employment programs and invest in existing industries that pay decent wages and are poised for growth. North Carolina’s economy can be strong only when its workers can support their families and its businesses have customers.
Allan Freyer is a policy analyst at the N.C. Justice Center.
January 26, 2014 at 12:56 pm
Norm Kelly says:
Since I do not know Mr. Freyer, I can make no comments about his background, economic intelligence, or political position. I can comment on his editorial.
What does Mr. Freyer propose? Stop trying anything new. Let's go back to the policies that were in place when the DemocRATs ran the state. Obviously the majority of voters in the state made a mistake when we elected Republicans; Republicans who told us they were going to try things a little different. And since a majority of NC voters took them at their word, voted them into office, shouldn't we expect the majority Republicans actually WILL try something new? If the policies of the Demons were actually good for the state, if we could have seen progress by the progressives, would the majority have voted to kick them out?
There are 2 problems with the unemployment issue that I can see. The state, under the Demons, borrowed $2.5BILLION dollars from the feds to continue to pay benefits beyond the 'temporary' stage. The state, under the Republicans, asked the central planners in Washington for permission to make modifications to the unemployment payments so the state could actually afford the 'temporary' benefits that Washington wanted to force us to pay.
Problem 1: When the state borrowed 10% of our budget total for this one line item, the Demons in charge had NO PLAN to pay it back. So what else is new? How often do Demon plans actually look to the future? With no plan in place, no plan in the future, for payback, what was the state going to do with this $2.5BILLION dollar bill? And worse, the state would have been forced to borrow MORE money from the feds to continue to pay 'temporary' unemployment benefits. 'Temporary' needed to be redefined, once again, in order to conform to the DemocRAT expectations of unemployment payments.
Problem 2: The new members of the NCGA, Repbulicans in charge, asked permission from the central planners to make modifications to the unemployment payments so we could continue to pay them, and so we could pay back the loan. What was the response from the 'loving', 'caring', 'for the common man' leadership in Washington? Washington that is majority control by the Democrat party! The central planners told our state that it was either THEIR way or no way at all. This administration, from the president on through Reid & Pelosi, has been one where they are hard line all the time, devoid of negotiation. This administration, the one who promised to be the most open and transparent in history, has refused to negotiate or make changes that might be considered compromise. So the Demoncrat-led majority in the central planner organization told NC to take a hike. No way to make changes to the unemployment payments. Either continue to pay the full amount, extend according the central planner rules, continue to borrow money from the central planners, or cut benefits off altogether.
So there were 2 choices. Do things the Demon way, go further into debt, have no clue how to pay the loan back, pay people for not working converting a temporary payment into an almost permanent entitlement.
What does Mr. Freyer propose? More of the Demoncrat plan. Government should be in the business of picking winners & losers, subsidizing one business at the expense of another business & the rest of us, implement even more job re-training programs as if the ones already in place aren't enough, and generally having more government intervention in the market. Of course there needs to be support for job re-training programs. No one is calling for this to end. What we are asking for is efficiency in this approach. Not ANOTHER program, just make the ones already in place more efficient. NOT more bureaucrats or bureaucracy, but more efficient opportunity for real people to attend job re-training programs/classes. Training programs for jobs that actually exist, for which people will get paid. How about the option of reducing government subsistence payments gradually as someone enters the job market, starts to earn a paycheck, rather than immediate termination of payments leaving the new employee with less actual disposable income.
Let's try something NEW. If we wanted the same old tired failed policies and ideas that existed for over 30 years in NC, then the majority would have continued to vote for Democrats. But we saw the handwriting on the wall, we understood that ideas were non-existent in the Democrat party, so we decided to give the new ideas of the Republican party a shot. The difference between media types and Democrats in general (both part of the same group!) is that average people are willing to give new ideas an opportunity, sufficient time, to determine success or failure. Even when a Demon plan fails miserably, provably, like Obamacare/socialized medine, the Demons continue to tell us that with just a few tweaks, just a little more money, their failure can be turned around. How has that worked out for the nation? Think $17TRILLION in debt before you answer that one. It's a trick question. That will probably slide right by the average Democrat party member.
January 26, 2014 at 4:07 pm
Richard Bunce says:
... or perhaps the unemployed left the State or started their own business which will take months if not years to show up in the employment data.
