Photograph by Gerry Broome/AP Photo
July
1, 2013: Protesting North Carolina’s decision to disqualify the state
from federal jobless payments; 70,000 people in the state lose their
benefits
When
Congress reconvenes on Jan. 6, one of the first issues it will take up
is whether to renew an emergency federal unemployment program that
expired on Dec. 28, cutting off 1.3 million jobless workers. Enacted in
2008 at the start of the recession, it provided up to 47 weeks of
benefits for those still looking for work when their state unemployment
benefits ran out. Senate Majority Leader Harry Reid says he’ll try to
pass a temporary extension, but most Republicans have balked at the $25
billion-a-year cost. If the program isn’t revived, the impact could be
significant—not just for the 1.3 million people losing a vital lifeline
but on the broader economy.
That was only half the blow. Reducing state benefits violated the terms of the federal program—which is intended to supplement, not replace, state aid—so workers in North Carolina were also disqualified from receiving federal benefits. In essence, the state’s experience over the last six months is a harbinger of what may be in store for the rest of the country. “This doesn’t have to be a thought experiment, because you can just look at what’s happened in North Carolina,” says Aaron Chatterji, an economist at Duke University’s Fuqua School of Business. “The 1.3 million people losing their benefits are going to be in the same position as the 170,000 people here who have lost theirs.”
At first glance, the effect appears to be positive. North Carolina’s unemployment rate dropped dramatically, from 8.8 percent to 7.4 percent between July and November. By comparison, the national unemployment rate fell by 0.6 percent over the same period. A closer look, however, suggests that North Carolina’s unemployment numbers have fallen not because the long-term jobless have found work but because they’ve quit looking altogether. As a result, the state no longer counts them as unemployed.
“The decline in the unemployment rate gives you a very limited view of what’s going on in our labor market,” says John Quinterno, founder of South by North Strategies, an economic research firm in Chapel Hill, N.C. “Year over year, the number of employed people in North Carolina ticked up by 6,082, while the unemployed fell by 101,901. That means the labor force contracted by 95,009. So the improvement has not necessarily been driven by more people going to work and is actually being driven to a large degree by people leaving the labor force.” In October the state’s labor force participation rate hit a 37-year low. One benefit of unemployment insurance is that “it has an anchoring effect,” says Quinterno, “because you have to be looking for work” to qualify for benefits.
Though the job market hasn’t fully recovered from the recession, many Republicans believe extending jobless benefits saps workers’ motivation to seek employment or accept positions they deem less than ideal. “I do support unemployment benefits for the 26 weeks that they’re paid for,” Kentucky Senator Rand Paul said on Fox News on Dec. 8. “Beyond that, you do a disservice to these workers. When you allow people to be on unemployment insurance for 99 weeks, you’re causing them to become part of this perpetual unemployed group.”
Economic research has shown that some job seekers do become less selective about the jobs they’re willing to take once their unemployment insurance expires—the so-called “employment effect.” There’s evidence this may be occurring in North Carolina. A Dec. 20 note from JPMorgan Chase’s (JPM) chief U.S. economist, Michael Feroli, pointed out that the state’s employment growth has outpaced national growth since July. Yet he also noted that labor force participation has fallen much faster than it has nationally. “In this case,” he concluded, “it would appear both channels are operative but the participation effect may be more important.”
It’s
hard to draw firm conclusions from limited data. But if the expiration
of jobless benefits is prompting large numbers of North Carolinians to
give up looking for work, it would augur poorly for the state’s economy
and the country’s, too. Working-age Americans who can’t find gainful
employment represent lost economic value and unmet U.S. growth
potential. While some may settle for part-time work, others will try to
qualify for disability. Long stretches of unemployment reduce the
likelihood of finding a job, as skills and connections atrophy.
As
people cycle in and out of the unemployment system this year, an
additional 3.6 million workers will lose access to benefits if federal
insurance isn’t restored, according to a December report by the White
House Council of Economic Advisers. That’s a lot of misery and
squandered economic potential. It’s also why “the Tar Heel test tube,”
as Feroli has dubbed it, is worth paying attention to. Says Chatterji,
“The statistics are so dramatic.”
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