Point of View

How Obamacare fears add to NC unemployment

August 14, 2013 

President Obama has outlined several broad policy goals intended to raise middle class incomes, encourage upward mobility and provide basic services like education and health care. While the goals themselves are admirable, it is the means by which the president hopes to accomplish them that matter most – especially at a time of great economic uncertainty for North Carolina.

North Carolina is sluggishly making its way out of the mire of the Great Recession. June unemployment numbers released by the Bureau of Labor Statistics showed a discouraging trend for North Carolina’s labor market. While the unemployment rate remains unchanged at 8.8 percent, more than 10,000 North Carolinians stopped looking for work in the last month.

Make no mistake. Even though a drop in the labor force can move the unemployment rate down, this is a bad development for the state. It indicates that opportunity is so dismal that people are giving up on finding jobs.

So why are employment prospects so bleak in North Carolina? And what can policymakers do to help the middle class? A major burden in the current economic climate is the uncertainty generated by the government. This feeling affects workers as much as business owners who regularly cite economic uncertainty as a major factor in hiring decisions.

One of the prevailing sources of uncertainty is the effect of the Affordable Care Act, popularly known as “Obamacare.” Though businesses with more than 50 workers will now have at least a year before having to pay for health care coverage, the looming cost of insuring these workers remains, and the uncertainty surrounding how the law will eventually be implemented has led to hiring freezes.

The cost is particularly poignant for small businesses, which overwhelmingly dominate North Carolina’s economy. In a recent Gallup poll, 41 percent of small-business owners claimed to have stopped hiring due to the law, with 19 percent of respondents stating they have actually decreased their workforce because of the ACA. Given that 98 percent of North Carolina’s employers are small businesses and employ roughly half of all private-sector workers in the state, this is a worrisome trend.


Another source of economic uncertainty for North Carolina’s economy is the Consumer Financial Protection Bureau. This agency, which wields broad and virtually unrestrained power over the financial industry, is charged with “protecting consumers” by regulating private sector services like payday lending, student loans, home mortgages and auto loans. The rigidity of the regulations and the added costs – both to comply and to pay penalties for missteps – have driven financial-service providers to eliminate highly regulated products altogether.

While the intentions of CFPB might be good, limited choice hurts rather than helps consumers. Ironically, the agency’s intervention harms the middle class most by restricting access to credit services where they need it most: buying a car, paying monthly bills or pursuing higher education. The CFPB regulations are dampening financial market activity – a troubling development for a state with the second-largest financial sector in the nation.

The reality is that we cannot constrain businesses with excessive regulation and undefined future costs without affecting the number of jobs available now. Instead, we should consider what is truly effective in improving prospects for the middle class and all North Carolinians – and what is destructive.

Policymakers must start to provide clarity to employers on the requirements and costs of ACA so that they can plan and make appropriate hiring decisions. Similarly, the CFPB should ensure that consumers have ample access to credit services while making businesses aware of exactly what kinds of transactions to avoid. The government must start working with rather than against businesses, if it expects economic conditions to improve.

Until businesses see a reprieve from these sources of economic uncertainty, North Carolina will continue to face headwinds in its journey out of the Great Recession.

Adam C. Smith is an assistant professor of economics at Johnson & Wales University in Charlotte.

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