There’s been a lot of discussion at NRO and elsewhere about the potential effects of ending federal extended benefits for unemployment insurance – and how North Carolina’s recent experience might inform the debate. Faced with a multi-billion-dollar UI debt to the federal government, the North Carolina legislature decided to reform the program earlier this year to bring benefits in line with other states, and thus limit future payroll-tax increases by paying the debt off more quickly. Under federal rules, that meant that North Carolina exited the extended-benefits program in July, the only state to do so.
What happened next? According to left-wing critics and some conservative commentators, North Carolina’s job market and economy suffered as a result, with former recipients losing buying power and not gaining jobs. But that’s not the most parsimonious reading of the available data, as I describe in a Carolina Journal column today:
From July to November, North Carolina employers added nearly 40,000 new jobs. Civilian employment, a different statistic derived from household rather than employer surveys, rose by 22,000. The state’s unemployment rate dropped by 1.4 percentage points, to 7.4 percent, while the national unemployment rate dropped by only 0.6 percentage points.
Critics point out, quite correctly, that North Carolina’s labor force also declined during the period, by about 10,000 persons a month. But they seem not to have noticed that the labor force was declining at a somewhat-faster rate, about 13,500 persons a month, before North Carolina exited the extended-benefits program.
There are two possible ways for extended benefits to elevate a state’s unemployment rate. One way is to keep recipients in the labor force who would retire, move, go back to school, or otherwise exit the program without an in-state job. The other way is to discourage recipients from taking in-state jobs they might not relish.
North Carolina’s unemployment rate has clearly fallen significantly since July. Liberals want to attribute the drop entirely to the first cause. But as Wells Fargo economist Mark Vitner points out in a new analysis, the second cause – people taking available jobs – appears to be having a larger effect on North Carolina’s numbers.
Experience to date in the Tar Heel State suggests that ending extended benefits won’t have the disastrous effects predicted by the Left. More likely, it will hasten the recovery of the labor market. You can read more here.