‘Carolina Comeback’ Masks Long-Term Unemployment
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The Fiscal Times
February 24, 2014

When Congress returns to session this week, renewing an extension of federal unemployment benefits will be near the top of the Senate’s agenda. But many Republicans who have filibustered efforts to extend jobless relief will argue that cutting benefits is actually the kind of tough love that workers need to push them to find jobs.

Look at North Carolina, they will say. Last summer, the state legislature passed a bill reducing unemployment insurance payments to workers, and slashing the duration of benefits from 73 weeks to one of the lowest-in-the-nation at 20 weeks.

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The law took effect in July, and not long afterward, the state’s unemployment rate began to plummet, falling far faster than the national average. Gov. Pat McCrory, the Republican former mayor of Charlotte, wasted to time proclaiming it a “Carolina Comeback.”

When the state unemployment rate hit a five-year low of 6.9 percent in December, down two full percentage points from where it stood in July, McCrory said, “The trend of more people getting back to work in North Carolina is great news for our state We continue to see that our pro-growth and pro-jobs policies enacted over the last year are having a positive impact and getting people into jobs.”

The results in North Carolina have become a conservative talking point in discussions about the federal unemployment insurance program. The federal program supplements state unemployment insurance benefits, which typically run out at about 26 weeks. At the worst point of the recession, the federal program extended the duration of benefits to 99 weeks, though that was eventually pared back to 73 weeks.

The federal extension expired at the end of December, and when Congress returned in January, Senate Majority Leader Harry Reid announced that renewing the extension would be his first order of business. However, two different attempts to renew the federal extension were filibustered by Senate Republicans.

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There are plenty of political arguments behind Republicans’ reluctance to extend unemployment insurance, including dissatisfaction with Democrats’ proposals for how to pay for it. But some have argued that, politics aside, it’s just a bad idea.

Kentucky Sen. Rand Paul has called extending unemployment insurance benefits “a disservice” to the unemployed. “[Y]ou're causing them to become part of this perpetual unemployed group in our economy," he said.

Extended unemployment insurance, said James Sherk, a labor economist with the ultra-conservative Heritage Foundation, “causes people to be more selective,” about jobs they will accept. “It encourages very counterproductive job search decisions.” The results in North Carolina, he said, prove conservatives’ point.

Recent research has begun to cast doubt on the idea that North Carolina’s “tough love” policies are actually successful at returning people to the workforce. In a report released last week, the North Carolina Justice Center found that 89 percent of the reduction in unemployment in the state in 2013 was due not to people rousing themselves to go out and look for jobs, but to people leaving the workforce entirely.

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Once workers are no longer actively looking for employment, they are no longer considered unemployed for purposes of the unemployment rate. Workers receiving unemployment benefits are required to demonstrate that they are seeking work.

North Carolina’s net job creation for all of 2013 was 13,414 jobs, but the number of people on its unemployment rolls dropped by 124,344 for the year – meaning that more than nine times as many people fell off the unemployment rolls as found new jobs. The state tends to shed jobs in the first six months of the year and to gain them back in the second half, so it’s instructive to look at the numbers more closely.

In the first six months of the year, North Carolina actually lost 27,950 jobs. Nonetheless, during that time, the number of people statewide listed as unemployed declined by about 31,000. This reflected that national trend of declining labor force participation driven by a combination of retirement and people exhausting their unemployment insurance benefits and giving up looking for work.

In the six months after the new law took effect, according to the Bureau of Labor Statistics, North Carolina added 41,364 jobs. (Actually the state’s weakest showing in the second half of the year since 2010.) Over that same time period, the number of people listed as unemployed dropped by 93,625, indicating that even during that period of job growth, more than half of the decline in the number of the unemployed came not from people finding work, but from leaving the workforce.

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“The claim has been made that North Carolina is experiencing a comeback as a result of these changes,” said Alexandra Forter Sirota, director of the Justice Center’s Budget and Tax Center. “But there is no evidence to support that. Job creation is lower year over year, including the six months since the law took effect. And the trend of people leaving the labor force started even before that.”

The fact that people were receiving benefits was not the problem, Sirota insists. “The problem is that there aren’t enough jobs for people who want to work.”

Nationally, much of the decline in the labor participation rate is due to baby boomers retiring and leaving the workforce. However, those retirements occur at a steady rate, and do not explain the state’s sudden drop in unemployment after the benefits cut took effect. Even allowing for the 41,364 new jobs in the second half of the year, the number of unemployed people still fell 70 percent faster in the six months after the law passed than in the six months before.

In a recent op-ed, John Quintero and Dean Baker, of the Center for Economic Policy Research reported that their analysis of North Carolina’s change to unemployment insurance had come to conclusions similar to Sirota’s.

“If the point of cutting unemployment insurance compensation was to get people back to work and spark job growth,” they wrote, “North Carolina’s policy choice appears, at first glance, to be a failure. If the point was to push people out of the labor force, it appears to be working.”

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A longtime reporter on the intersection of the federal government and the private sector, Rob Garver is National Correspondent, based in Washington, D.C. He has written for ProPublica, The New York Times and other publications.