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June 2012
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SUNSET Extended jobless benefits have run their course

As the fallout of the Great Recession fell further into the rear-view mirror and the unemployment rate ticked down into the low 6 percent range, there was growing debate about whether further extension of federal unemployment benefits was a needed safety net or a moral hazard.

Federal benefits were for several years extended to people who had been out of work as long as two years, causing some to argue that the extended benefits were contributing to unemployment by persuading some who could find jobs not to participate in the workforce.

Now there is data from the state level in North Carolina that seems to lend support to that idea. It was just a year ago that North Carolina became the first state in the nation to exit the federal government's extended unemployment benefits program.

According to a July 4 column by John Hood in The Wall Street Journal, North Carolina dropped out of the program to avoid having to impose payroll tax increases to pay back Washington for the federal benefits. The state reduced the amount and duration of its unemployment benefits, and thereby became ineligible to continue in the federal program on July 1 of 2013.

The move subjected the state to attack from liberal pundits such as the New York Times' Paul Krugman, who accused the state of a "war on the unemployed." But Hood writes that during the last six months of 2013, North Carolina "had one of the nation's largest improvements in labor market performance and overall economic growth."

Hood says based on U.S. Bureau of Labor Statistics data, the number of payroll jobs in North Carolina rose by 1.5 percent in the last half of 2013 versus an .8 percent rise for the nation as a whole. Unemployment in the state dropped by 17 percent compared to a national average drop of 12 percent. Specifically, the state rate fell from 8.3 percent in June to 6.9 percent in December compared to the national rate, which dropped from 7.5 percent to 6.7 percent during the same period.

Some critics dismissed the rapid gains in North Carolina as a phenomenon of people who lost benefits simply leaving the workforce. But in early 2014, North Carolina's workforce participation rate began to rise. Hood writes that as of May, which is the most recent data available, North Carolina's workforce participation rate is down by .04 percent from June of 2013. During the same 11-month period, the national workforce participation rate is down 2.5 times that at .1 percent. Also during the period, Hood writes, North Carolina's employment to population ratio rose at three times the national average.

Interestingly, the federal extended benefits program expired nationwide at the end of 2013. Household employment is up and as of the most recent national jobs report, so is the workforce participation rate.

The argument over extended unemployment benefits really boils down to how long is too long, and data from North Carolina and now nationally suggests that the answer is now is long enough. Extended benefits, which are officially called Emergency Unemployment Compensation (EUC), are supposed to be just that - an emergency measure to get people through extraordinary disruptions in the economy. It's hard to argue that five years into an economic recovery, even an anemic one, the emergency still exists. The goal of EUC definitely is not to create a new segment of permanently unemployed people.

Interestingly there is legislation in both the House and Senate to revive the EUC program in 2014. Both measures would extend EUC benefits by five months, but so far the bills seem to be going nowhere. We think that's a good thing, since all demagoguery aside, the data suggests at this point any extension would do more harm than good.

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