During the recent recession, the federal government expanded the number of weeks an individual could receive unemployment benefits, and most states accepted the increased weeks and funding. The first expansion increased the period to 99 weeks through May 2013; it was reduced to 73 weeks through December 2013. By the end of 2013, the average duration of benefits in the states was 55 weeks, according to Politico.
Although most states still maintain extended UI benefits, North Carolina took a different approach, ending its benefit extensions months earlier. Its unemployment levels have fallen faster than many of its neighbors’. In June 2013, North Carolina cut the maximum duration of UI benefits from 63 weeks to 19 weeks. Since these reductions, employment growth in North Carolina has well outpaced the rate in neighboring Virginia, Tennessee, South Carolina, and Georgia, and has outpaced growth all other U.S. states, according to Forbes.com.
Between June and November 2013, after the extensions ended, employment in North Carolina grew by more than 22,000. Writing in Politico, Diana Furchtgott-Roth points out the Labor Department’s Current Population Survey over that period shows the number of unemployed in North Carolina declined by 17 percent; this is more than in North Carolina’s neighboring states, at 8 percent, and the rest of the United States, at 5 percent.
John Hood, president of the Raleigh-based John Locke Foundation, argues these positive developments fit the commonly held idea that extended benefits reduce employment. “North Carolina has added jobs at a much faster rate in the second half of 2013 than it did in the first half of the year, when extended UI benefits were still in place,” Hood said. “That’s consistent with empirical research suggesting that extended benefits deter both creating and taking jobs. The picture for 2013 is also contrary to the pattern in 2012, when North Carolina’s job growth was somewhat stronger in the first half of the year than it was in the second half.”
North Carolina’s unemployment rate has shrunk since the reduction in its UI extensions, yet some critics argue the unemployment reduction was not caused by the shortening of UI extensions but instead by UI claimants dropping out of the labor force altogether. James Sherk of The Heritage Foundation, however, demonstrates this argument does not fit the facts. Sherk cites data showing labor force participation rates were already falling before North Carolina ended its extended UI benefits, and the labor market has improved since then.
North Carolina’s employment growth following the contraction of its unemployment benefit programs shows limiting UI benefits does not hurt the economy and can in fact increase employment. Legislators in other states should follow its lead.
The following articles examine unemployment insurance and North Carolina’s experiences, from multiple perspectives.
North Carolina Cut Jobless Benefits and the Sky Didn’t Fall
Diana Furchtgott-Roth, a senior fellow at the Manhattan Institute for Policy Research, examines the case of North Carolina, where employment has increased and unemployment declined from 8.8 percent to 7.4 percent in the five months following dramatic cuts in the state’s unemployment benefits.
Emergency UI Benefits: Reasons Against
The Senate is considering legislation to revive the emergency unemployment insurance program. These federally funded benefits were in place from mid-2008 to the end of 2013. Federal policymakers like to be seen as spending money helping people in need, but there are large and less visible costs to such welfare legislation. Chris Edwards of the Cato Institute examines several reasons why additional UI spending is not a good idea.
Examining North Carolina’s Falling Unemployment Rate
James Sherk of The Heritage Foundation examines North Carolina’s falling unemployment rate and argues that although it may be too early to make any definitive calls on causes, unemployment decreased rapidly after North Carolina ended its extended UI benefits. The data available do not yet allow analysts to conclude much more than that.
Case Study of Unemployment Insurance Reform in North Carolina
Marcus Hagedorny, Fatih Karahanz, Iourii Manovski, and Kurt Mitman construct in this study a dataset containing the series most relevant to a discussion of the performance of the North Carolina labor market after the unemployment insurance reform, evaluating whether the evidence from North Carolina is consistent with past research on the effects of unemployment benefits.
Congress Should Not Extend Unemployment Benefits; North Carolina Proves Why
Writing in Forbes, Patrick Gleason examines the positive results of North Carolina’s UI policy and argues Capitol Hill lawmakers should learn from North Carolina’s experience and reject the retroactive UI extension sought by President Barack Obama and Senate Majority Leader Harry Reid.
First, Stop the Bleeding: Getting North Carolina Out of Its Unemployment Insurance Crisis
Fergus Hodgson, director of fiscal policy studies at the John Locke Foundation, discusses North Carolina’s previous unemployment insurance problems and makes several suggestions for improvement.
Research & Commentary: Unemployment Insurance Fraud and Overpayments
This Heartland Institute Research & Commentary on unemployment insurance examines the growing problems many states are facing because of unemployment insurance overpayments, waste, and abuse.
Unemployment Insurance: You Get What You Pay For
Brian Balfour of the Civitas Institute argues extending unemployment benefits in North Carolina would have obvious consequences: “paying more people not to work will result in more people not working. Unemployment will be higher than otherwise, the economy’s output will fall (slowing economic growth), and actual job opportunities will dry up.”
Unemployment Insurance Taxes: Options for Program Design and Insolvent Trust Funds
Writing for the Tax Foundation, Joseph Henchman recommends several significant improvements states can make to the unemployment insurance taxation and benefits programs. States could offer more innovative and sustainable methods to find jobs for both the short-term and long-term unemployed while preserving benefits to support them in the meantime. These options include eliminating the firewall between administrative costs and benefits, reducing cross-subsidies through greater use of experience ratings, relying more on face-to-face training and advising, adopting elements of state workers’ compensation programs, and experimenting with individual accounts to encourage saving. These changes can help programs concentrate on ensuring a viable safety net for transition periods between jobs.
Failures of the Unemployment Insurance System
Chris Edwards and George Leef of the Cato Institute describe the origins and structure of the unemployment insurance system. They critique the justifications given for a government-run UI system and discuss the economic distortions the system creates. The UI system raises the cost of hiring, creates a disincentive to work, reduces the incentive to save, and subsidizes some businesses and workers at the expense of others, the authors note.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit The Heartlander’s Finance and Insurance News Web site at http://news.heartland.org/insurance-and-finance, The Heartland Institute’s Web site at www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.
If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Senior Policy Analyst Matthew Glans at 312/377-4000 or [email protected].