A recent opinion piece in Forbes Magazine wrongly claims that steps North Carolina took to reduce how much its unemployment insurance program provides to jobless men and women (and make benefits harder to collect) are somehow helping North Carolina’s economy.
Nothing could be further from the truth.
The article, written by North Carolina’s rightwing Civitas Institute and one of its business partners, heralds the tax cut bonanza that employers have reaped via as a result of the cuts as driving workers into employment and employers to create jobs.
In reality, North Carolina’s overhaul of unemployment insurance devastated a system meant to protect the economy from lower consumer demand that occurs when job losses mount through no fault of workers.
As policymakers sought to pay down the debt incurred because of historic job loss during the Great Recession and an insufficient Unemployment Trust Fund resulting from years of tax cuts, they pursued a lopsided approach. They called on jobless workers to pay far more through cuts to their unemployment insurance payments, reducing the number of weeks they could collect benefits, making the system harder to access and limiting job training and workforce development opportunities.
The result: North Carolina’s program went from being not particularly generous and in the middle of the pack among all states to downright stingy and at the bottom.
In the third quarter of 2015 (the latest data available):
- Just 11% of the state’s unemployed receive unemployment insurance which ranks us last in the country.
- The state’s average weekly benefit was $233.69 — 46th in the country. Average weekly benefit as a percent of average weekly wage was 27 percent — 44th in the country.
- The average duration for collecting UI was 11.5 weeks – dead last in the country.
Before the changes went into effect, the story wasn’t nearly so bad. The measures:
- The state had a 39% of unemployed workers receiving unemployment insurance in the second quarter of 2013 which ranked us 24th.
- The state average weekly benefit was $301.06 – 25th in the country.
- The state average benefit duration was 15.9 weeks – ranking us 31st.
In 2013, the Tax Foundation, a conservative organization that policymakers often quote, ranked North Carolina’s UI system fifth most favorable to business in the nation. Only Arizona, Oklahoma, Delaware and Louisiana scored higher. That was BEFORE the unemployment insurance changes.
Today, employers contribute to the system at a rate of just one penny for every $100 of wages paid. On average per covered employee, they are paying $480 in state unemployment insurance taxes. What’s more, the current average tax rate of 2.2 percent is below what the US Department of Labor determines to be adequate.
Perhaps most troubling in the arguments of those inclined to ignore economic realities is the suggestion that the system was rife with fraud and was discouraging people from seeking jobs. The facts say otherwise. Consider the following:
- Our system was efficient before the cuts. The Labor Department’s performance measures on state unemployment insurance systems found North Carolina’s three-year fraud rate was a low 3.8 percent of cases reviewed. The state has implemented all but one recommended procedure to ensure high quality in processing of claims.
- Jobless workers now have a harder time signing up for UI because they now can do so only online, not in person. This shift, along with sharply reducing support for job training for unemployment insurance claimants, provides little opportunity for those looking for work to get connected to the tools to find work and ultimately a decent job.
- North Carolina’s recent job gains have nothing to do with making its unemployment insurance system so restrictive. Just the opposite: North Carolina continues to see fewer people enter the labor force and has employment levels well below pre-recession levels. It’s important to point out that unemployment statistics only count people looking for a job, not those so discouraged they’ve given up. In fact, employment is growing more slowly in the states that drastically cut unemployment benefits. North Carolina has fallen 2.8 percentage points behind employment growth for the nation over the period since the cuts went into effect.
- Given that insurance taxes represent 0.1% of total business costs, there is little reason to believe that cuts to unemployment insurance will drive employers to add jobs. Most businesses decide to expand jobs when there is demand for their goods and services, an economic condition that is undermined when consumers do not have money to meet their most basic needs.
- Unemployment insurance cuts do nothing to move people into work. North Carolina has always had one of the lowest durations of unemployment insurance primarily because there were jobs and training for jobs that people could move to. Despite the recovery, there are still too few jobs for those who want to work, and for those seeking retraining no strong pathway to get the skills for jobs of the future. Moreover, recent studies have found that UI benefits encourage recipients to stay in the workforce and actively search for a job, which may increase the share of jobless workers who are later re-employed.
Alexandra Sirota is the Director of the N.C. Budget and Tax Center.