January 9 2014

What Happened When North Carolina Slashed Unemployment Benefits?

Charlotte Hays

Here’s a story from Market Watch that Rep. Nancy Pelosi, who thinks extending unemployment benefits is always a humane idea, should read:

Last summer, North Carolina slashed the amount of cash it gave to people after they lost their jobs and the state also reduced the number of weeks they could receive benefits.

Within several months, the unemployment rate fell a few ticks and by November it fell to a five-year low.

The financial site reports that jobless rates declined similarly, though less spectacularly, in Georgia and South Carolina after they also reduced jobless benefits in 2012.

 Market Watch is careful not to conclude that the news from North Carolina is a vindication of critics of extending unemployment benefits. It notes that several states have shown lower unemployment rates without reducing benefits.

But the North Carolina experience still deserves a look. North Carolina was hit especially hard by the Recession and so it availed itself of federal loans to pay for the regular unemployment benefits, which, once upon a time, lasted 26 weeks.

In hock to the feds, North Carolina, under Republican Governor Pat McCrory, who took office in 2013, cut the maximum weekly benefit from the previous high of $535 to $350. The time people could collect benefits was cut from 26 weeks to only 12 or 20.

McCrory wanted to restrain North Carolina’s burgeoning debt to the federal government. It was cut benefits or raise taxes, which McCrory maintained would hurt businesses (which, after all, provide the only real way out of unemployment).

McCrory’s cuts imposed a further hardship on the unemployed: unemployed North Carolinians became ineligible for certain cash payments offered by the federal government, which requires states to pay a certain level of benefits to qualify for these payments. About 70,000 North Carolinians lost out on these payments.

If the Democrats (and a few Republicans!) battling on Capitol Hill are right, McCrory’s cuts should have ushered in a humanitarian crisis. Reporter Jeffrey Bartash writes:

So what happened? North Carolina’s jobless rate rose a notch to 8.9% in July and then began a steady descent: 8.7% in August, 8.3% in September, 8.0% in October and a preliminary 7.4% in November, according to U.S. Labor Department figures.

That’s the lowest rate since late 2008, though monthly numbers are prone to sharp revisions.

Bartash proposes that this data doesn’t tell us what happened to everybody who is no longer classified as unemployed. He speculates that some may have retired, ended up on welfare, or moved in with family. In other words, some of them may have gotten out of the work force, as many former workers across the nation have done, thus helping bring down the still dangerously high national employment rate. Still, it is undeniable that North Carolina's unemployment rate declined in the wake of policies that Democrats on Capitol Hill have portrayed as mean-spirited.

It is unfortunate that Republicans in Congress are focusing on how to “pay for” extending the benefits, as if extending these benefits is inherently good, if only you can find a way to afford them. They should instead be willing to talk about the morality and utility of longterm unemployment benefits. (This is something I know a bit about: I’ve talked before about how, in the 1990s, I had first-hand experience with unemployment beneifts. The blog post should have been headlined "How I Lost My Benefits but Found a Job." I’d been dawdling before, doing a search for the perfect job, but you know how it is when the wolf is at the door: Mr. Wolf makes you lose your pickiness and take any job you can get. For me, it was a job I didn't really want but which turned out to be a longterm, life blessing.)

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