December 1, 2014


New unemployment figures show how hard choices the Legislature made to payoff debt in the Unemployment Insurance Fund expanded the economy.

In October, North Carolina unemployment continued falling down to 6.3%. New jobs increased by 17,000 over the prior month with total non seasonally adjusted employment reaching 4.422 million.

In February 2013,unemployment stood at a whopping 9.4%, far above the national average of 7.7%, and employment was only 4.256 million.

Back then, the New Conservative Majority in the Legislature was beginning to clean up the mess left behind by the Easley and Perdue Administrations like a $2.6 billion debt in the Unemployment Insurance Fund rung up by chronic overspending and double digit unemployment, a bigger debt than any state besides New York and California. And as the debt got bigger, Washington kept increasing taxes on employers to fund it, making it harder to hire.

Facing up to a debt the left-wing Democrats had ducked, the Conservative Majority reformed benefits, bringing unemployment payments into line with neighboring states.

The Moral Monday mobs went crazy with Wisconsin style protests. But now the debt has been slashed by 2/3 and Washington’s tax increases on employers have stopped.

The conservatives took the heat. And unemployment came down because people had to go back to work when the lower benefits kicked in. Read the take of U. S. Senator Ron Johnson on how North Carolina’s reform worked.

“Things may be getting better soon for people left without a job: The extended-benefits program for the unemployed expired nationwide Jan. 1 and hasn’t been reinstated. How can this help? Because the evidence from North Carolina shows the kind of improvement in hiring that apparently comes after ending extended benefits.

John Hood lays out the numbers in the Wall Street Journal. North Carolina dropped out of the extended-benefits program early, on July 1, 2013. The state, he writes, “didn’t descend into the Dickensian nightmare critics predicted.”

“For the last six months of 2013, it was the only state where jobless recipients weren’t eligible for extended benefits. Yet during that period North Carolina had one of the nation’s largest improvements in labor-market performance and overall economic growth.

“According to the U.S. Bureau of Labor Statistics, the number of payroll jobs in North Carolina rose by 1.5% in the second half of 2013, compared with a 0.8% rise for the nation as a whole. Total unemployment in the state dropped by 17%, compared with the national average drop of 12%. The state’s official unemployment rate fell to 6.9% in December 2013 from 8.3% in June, while the nationwide rate fell by eight-tenths of a point to 6.7%.”

Critics said it was “a mirage,” writes Hood, that “North Carolinians were simply dropping out of the labor force, not being nudged by a loss of benefits into jobs they might not otherwise have taken.”

But a drop in labor-force participation came well before North Carolina left the program and included other states. Its labor force is again rising, going against the national trend, and the share of the population that has a job has risen three times as fast in the state as it has nationally.

How could this be? Economist Casey Mulligan at the University of Chicago explained in the Wall Street Journal how our extraordinarily weak recovery may well have been the result of well-intentioned programs to help the poor.

There was the temporary extended benefits for the unemployed that lasted six years. Food stamps became much easier to get and saw enrollment soar. Mortgage help, bankruptcy relief – all these programs provide valuable help to people hurt by the recession, Mulligan writes, but at a cost: “The more you help low-income people, the more low-income people you’ll have. The more you help unemployed people, the more unemployed people you’ll have.”

Mulligan relates:

“I met a recruiter—a man whose job it is to find employees for businesses and put unemployed people into new jobs—and he described the trade-off pretty well. Stacey Reece was his name, and he said that in 2009 his clients again had jobs to fill. But he ran into a hurdle he hadn’t seen before. People would apply for jobs not with the intention of accepting it, but to demonstrate to the unemployment office that they were looking for work.

“As Mr. Reece described it, the applicants would use technicalities to avoid accepting a position. The applicants would take Mr. Reece through the arithmetic of forgone benefits, taxes, commuting costs and conclude that accepting a job would net them less than $2 per hour, so they’d rather stay home.

“People remain unemployed longer, as Mr. Reece saw with his own eyes.”

It isn’t that people are behaving badly, Mulligan writes. It’s that economic incentives have real effects:

“Mr. Reece’s perspective comes with some judgment; his story makes the unemployed seem a bit lazy or ungrateful. But you could just as well say that this situation arises from the employer’s failure to up his bid so that it competes better with unemployment benefits.”

That is, the extended benefits raised the cost of hiring someone. The extended benefits also made it “cheaper” to lay someone off, Mulligan writes:

“Unlike state unemployment-insurance benefits that are sometimes a kind of liability for the employer writing the pink slip, the federal unemployment-insurance expansions were paid by taxpayers generally, which means that an employer could lay off as many people as he wanted without adding to his federal tax burden.”

These aren’t the results politicians wanted, but they’re the actual results — and the unintended negative consequences of the politicians’ good intentions. About 9.5 million Americans still say they’re unemployed, a number that would be about 16.6 million but for the huge number of people who have dropped out of the labor force entirely. Politicians need to start seeing the unforeseen consequences of their good intentions – and to start seeing what actually works.”