This article and accompanying interactive chart were first published at the website of the Economic Policy Institute.
Unemployment insurance (UI) is a vital part of America’s social safety net, providing benefits to eligible workers who have lost a job through no fault of their own. The system is jointly funded by federal and state payroll taxes, but within broad guidelines from the Department of Labor, states have considerable flexibility in deciding benefit eligibility, how much and for how long beneficiaries are paid, as well as the tax structure for funding the state portion of the program. While most states offer a maximum of twenty-six weeks of UI benefits, the historic magnitude and duration of unemployment brought on by the Great Recession prompted Congress to implement federal extensions of unemployment benefits, totaling as much as ninety-nine weeks.
A full six months before Congress allowed these federal UI extensions to expire (in December 2013), the state of North Carolina disqualified its unemployed workers from receiving federal UI extensions by simultaneously cutting duration from twenty-six to nineteen weeks and cutting the amount of weekly benefits (without receiving a waiver from the federal government). The justification for this decision was that by making UI benefits less generous, unemployed workers would have more incentive to take available jobs, and employment levels in the state would rise. If North Carolina’s drastic cuts in UI benefits were an effective policy tool for increasing employment, we would expect to see a very different employment trajectory in North Carolina consistent with the timing of the policy change as compared with nearby states likely experiencing similar macroeconomic conditions.
The graph above shows the month-by-month prime-age employment-to-population ratio (EPOP), which is the percentage of the working age population that is employed, for North Carolina and five nearby southern states, from the start of 2012 through the end of 2013. The prime-age EPOP excludes people who are younger than 25 or older than 54, so it is less likely to be affected by people who voluntarily choose not to work because they are enrolled in school or retired.
As the graph shows, North Carolina’s prime-age EPOP began rising rapidly in the months prior to the duration cutback, began falling steadily just two months after the duration cutback, and differed very little in behavior after the cutback from prime-age EPOPs in surrounding states. This outcome provides little reason to believe that North Carolina’s cuts fundamentally improved the labor market in the state.
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