July: North Carolina Slashes Unemployment Insurance Benefits

The New York Times: “North Carolina's Deep Cut To Jobless Benefits Takes Effect Amid Protests.” As The New York Times reported on July 1, 2013, North Carolina made deep cuts to unemployment insurance benefits:

North Carolina's sharp cuts in benefits to the unemployed went into effect this week, amid a swelling public outcry.

The far-reaching changes enacted by the Republican-controlled legislature in February decreased the maximum benefit payout by more than one-third, which will result in a decline in the average weekly benefit, making the state ineligible for about $700 million in federal aid. The measure also reduced the number of weeks residents can receive unemployment aid. [New York Times, 7/1/13]

Fox's Stuart Varney Pushes North Carolina As Model For Nationwide Benefit Cut

Stuart Varney: North Carolina Proves Unemployment Insurance “Is A Trap.” On the January 27 edition of Fox News' Fox & Friends, Fox Business host Stuart Varney claimed that North Carolina's benefits cut proves that unemployment insurance hurts overall employment, citing a study that he claimed showed that "[t]he unemployment rate went down. More people flooded back into the labor force. The number of active workers went up":

CO-HOST STEVE DOOCY: But do these jobless benefits really create jobs? Stuart Varney is here with details. What do you think?

VARNEY: I say no. And I'm backed up by an academic study of what happened in North Carolina. In that state, they reduced the time that you can get unemployment benefits and they reduced the level of unemployment benefits. Guess what? The unemployment rate went down. More people flooded back into the labor force. The number of active workers went up.

DOOCY: So as soon as their benefits ran out, they went out and got a job.

VARNEY: They went out and got a job. Now the president says you've got to flood the economy with money, whether food stamps or unemployment benefits. It doesn't matter. Just flood the economy with money and you will create jobs. The North Carolina study suggests the exact opposite.

CO-HOST ELISABETH HASSELBECK: Right. Proves it otherwise.

[...]

VARNEY:It's a trap. It is a trap. Right now you get food stamps, you get cash, and you get extended unemployment benefits. If you take a job you lose some of those benefits. You could say that economically, you lose. So, extending benefits constantly is really bad for the economy. And also it points out the underlying failure of the president's policies to create jobs. [Fox News, Fox & Friends, 1/27/14]

North Carolina Benefit Cut Pushed Workers Out Of Labor Force And Into Food Bank Lines

The Guardian: North Carolina UI Cut Boosts “Desperation.” A January 15 Guardian article noted that North Carolina's benefit cuts led to a 10 percent increase in demand at food banks, and that the drop in unemployment since the change was largely a result of the “50,452 people who left the state's labor force between June and November” because “when benefits are cut off, recipients will be forced to take a job, even if it's low-paid or part-time. But the theory doesn't work so well if there are no jobs available”:

Eight hours may seem a long time to wait for a meal. But the line of cars that formed in a derelict parking lot in Hertford, North Carolina, early last Thursday morning, full of people waiting for a few cans of soup and some pasta from a local food bank, was nothing unusual. Almost every morning now, there is a line like that somewhere in North Carolina.

[...]

Official indicators that will show the full impact on the state's economy may not be available for months to come, but the effect that the cuts have had on North Carolina's food banks tells its own story.

The food banks saw a 10% increase in demand in the three months following the benefits cut in July. Demand increased by another 10% in October and November, the last months for which data is available.

Alan Briggs, executive director of North Carolina's association of food banks, said not all of the increased demand can can [sic] be attributed to the reductions in unemployment benefits. A nationwide cut in funding for food stamps that went into effect in November has been particularly difficult for the network's clientele. Congress is reportedly on the verge of cutting the food stamp program by another $9bn.

But Briggs said there is little doubt the cut to unemployment insurance has “contributed significantly” to the growing numbers of people who have been forced to rely on food donations.

[The Guardian, 1/15/14]

New York Times: “Countless Families Have Slipped Deeper Into Poverty” After North Carolina's Benefit Cut. According to The New York Times, some North Carolina workers were forced to accept limited employment after the cuts, but for every worker that was pushed back into the labor force by the change, “two dropped out of the labor force entirely.” The Times reported that “countless families have slipped deeper into poverty” as a result of the cuts:

But statistics don't tell the full story. North Carolina still has nearly 350,000 listed as officially unemployed, and many more, including those living in depressed rural areas, have given up even looking for a job. For them, the safety net is gone, and largely out of sight, countless families have slipped deeper into poverty.

That includes Ms. McKnight's. She still applies for jobs every day, and is hoping to be retrained as a certified nurse's assistant. But in the meantime, she has sold her son's dirt bike. She has stopped sending money to her mother, who has cancer, or to her daughter in college. A friend sold a set of decorative car rims to help her pay her electric bill. She has started visiting a local food bank for groceries.

“Two interviews so far out of 150 applications,” Ms. McKnight said. “If unemployment were for a year or a year and a half, that's enough time to get established and get a job. Now, it's over before it starts. That's not enough time to find a job in an economy as bad as it is.”

It is still early, but the results in North Carolina suggest that there are both gains and losses from cutting back on support for the jobless. The state's unemployment rate has plummeted to 7.4 percent from 8.8 percent, the sharpest drop in the country. In part, that is because more jobless workers are connecting with work. But an even greater number of workers have simply given up on finding a job.

Nonpartisan economists said it was difficult to definitively show the impact of the change to the unemployment insurance program on the state's labor market. Employment increased from June through November by more than 22,000 people (reaching a total of over 4.3 million). But for every worker who found a job, more than two dropped out of the labor force entirely, according to the latest survey by the Bureau of Labor Statistics, which recorded a decline of over 50,000 from June through November.

[...]

Even conservative proponents of the North Carolina policy said there were downsides along with the upsides: Many jobless workers are accepting jobs for far less pay than they made before, and in many communities, there are simply not enough jobs. [The New York Times, 1/22/14]

Furthermore, Varney's New Study Is Disputed By Other Data And Should Be “Interpreted With Extreme Caution”

Dean Baker: North Carolina UI Study “Almost Certainly” Based On Inaccurate Unemployment Figures. Economist Dean Baker took issue with the University of Oslo study Varney cited, arguing that the study's claim that North Carolina “employment fell by 295,000 or 7.0 percent in the three months from November, 2012 to February, 2013,” “almost certainly did not happen.” As Baker pointed out, this created a likely inaccurate baseline for comparison: 

Instead, the paper claims that there was a sharp uptick in employment in the period since severe cuts in unemployment insurance benefit duration and eligibility were put in place in July of last year. While the data, which the authors have constructed from their analysis of the Current Population Survey, does show a sharp turnaround (which actually begins in February), it also shows this striking falloff in employment following the election.

[...]

In reality, this sharp falloff in employment almost certainly did not happen. This is horrific depression type stuff. Unless North Carolina was hit by some devastating epidemic, war, or climate disaster (the data are seasonally adjusted), employment could not have fallen as indicated in the data shown in the paper. Conversely, this also means that employment almost certainly did not rise as shown in the data. In other words, the data series in the paper is being moved by errors in measurement, not anything real in the economy.

The paper's author obviously wants to argue that cutting unemployment benefits is a good thing for job creation and economic growth. His data are far too flimsy to make the case, which more reliable data clearly do not support. But if we want to treat the Hagedorn data as being authoritative then we can say that McCrory's election was the worst thing to hit North Carolina since General Sherman's army. [Center For Economic And Policy Research, 1/24/14]

Wash. Post: University Of Oslo Study Contrasts With BLS Data. In a post on The Washington Post's WonkBlog, Brad Plumer pointed out that data from the Bureau of Labor Statistics (BLS) showed that the labor force “has plummeted in North Carolina since last summer,” a contradiction the University of Oslo researchers were unable to resolve. Further, the study's authors warned that their data “should be interpreted with extreme caution”:

1) Many workers may have dropped out of the labor force. Everyone agrees that North Carolina's unemployment rate kept dropping, much as it did in the rest of the country, after benefits got cut.

But that might have been a bad omen: According to data from the Bureau of Labor Statistics, the number of people in the labor force has plummeted in North Carolina since last summer (even as it rebounded slightly in the rest of the nations)

[...]

First, some people who saw their jobless benefits lapse may well have found jobs -- perhaps they decided to take a lower-paying gig than they otherwise would have, out of desperation. But a greater number of workers appeared to have simply given up looking altogether, possibly because jobs are still extremely difficult to come by, and they no longer have to keep searching to qualify for benefits.

2) ...or perhaps employment actually increased. Yet other data sets seem to tell a different tale. A more optimistic view of what happened in North Carolina comes from a new paper (pdf) led by Marcus Hagedorn of the University of Oslo. He and his three co-authors sifted through the Census Bureau's “household survey” and the “establishment survey” for the same period. And the results were surprising.

[...]

So who's right? These are obviously two contrasting views about what happened to North Carolina's labor force, based on seemingly conflicting data sets. In their paper, Hagedorn and his co-authors wrote, “We could not establish the reasons for this discrepancy based on our conversations with the BLS.”

Perhaps the data's just noisy, and it's way too early to draw any broad conclusions from a half-year's worth of numbers in a single state. Indeed, Hagedorn and his co-authors explicitly emphasize caution: “Only a few months of data are available and sample sizes available in most data sets are too small to yield reliable predictions of month to month changes in variables such as employment, unemployment, etc. So the evidence provided below should be interpreted with extreme caution.” (See Dean Baker for more on this.)

The authors also note that it's hard to tease out the effects of slashing jobless benefits from other things that may be going on in North Carolina, like weather, migration, demographics, or even the decisions of large employers. [The Washington Post, Wonkblog, 1/24/14]