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A public policy blog from AEI
Earlier this year, as The New York Times reported, the North Carolina legislature cut unemployment benefits, reducing (a) the maximum payout by a third and (b) the number of weeks residents can receive jobless aid. As a result, starting in July the state lost its eligibility for the federal Emergency Unemployment Compensation program. (This is the extended benefits program scheduled to expire nationally at year end.)
So how’s that worked out in the Tar Heel State?
Well, if you listen to Republicans, it’s worked out pretty well. The state’s unemployment rate has dropped to 8.0% in October from 8.8% in June. So clearly cutting jobless benefits creates jobs and gets residents back in the workforce, right?
When you dig a bit deeper, things look less bright.
1.) In June, the month before benefits were cut, there were 416,314 residents classified as unemployed. In October, there were 371,756. That’s a decline in unemployment of 44,558.
2.) Over that same period, the number of employed residents only rose by 1,902 from 4,292,251 to 4,294,153. So what happened to those 42,656 residents who left unemployment but did not move to employment?
3.) The state’s labor force participation rate tells the story. It plunged from 62.2% in June, before the benefits cut, to 61.4% in October. If that rate had merely stayed steady, the state’s jobless rate would have increased to 9.1% rather than sharply declining.
In other words, it looks like the cut in unemployment benefits moved people out of the labor force rather than into employment. Likewise, the state employment rate — the share of adults with jobs — declined from 56.7% in June to 56.5% in October. Did reducing the number of North Carolina residents eligible for federal extended unemployment benefits boost employment? These data suggest it did not, a reality Washington policymakers might want to consider.
Update: Bloomberg’s Evan Soltas has noticed the same impact. His conclusion: “Cutting unemployment insurance apparently hasn’t encouraged the unemployed to look harder for work: It has caused them to drop out of the labor force altogether.”
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