The North Carolina legislature in 2013 passed a sweeping reform of the unemployment insurance program. It included a trifecta of privation for workers losing their jobs without cause: lower weekly insurance payments, shorter time frame for receiving payments and abrupt cancellation on July 1 of extended benefits provided by the federal government.
Sen. Kay Hagan has proposed reinstating eligibility of North Carolina residents for those federal extended benefits. The state legislature should consider this carefully, recognizing that this is an insurance program and not a giveaway.
Insurance is a concept with which most of us are comfortable: We make regular periodic payments to an insurer for the protection and peace of mind that if emergencies arise or catastrophes occur we will be somewhat protected from the events harshest effects. Unemployment insurance is coverage provided to those workers losing their jobs through no fault of their own. Those unemployed who qualify for unemployment insurance receive a modest weekly payment for a small number of weeks to assist the workers and their families in meeting their ongoing expenses after losing paid employment.
The revenue for this program at the state level comes from a tax levied on payrolls of North Carolina-based firms. Should the states funds be insufficient at any time to meet its obligations, the federal government provides loans to the state to help it meet these obligations. This insurance is not offered by private companies, but by government. Importantly, it also protects businesses by encouraging consumer spending during an economic downturn.
The state legislatures unilateral decision last year to reform unemployment insurance was an abrogation of the insurance contract with workers. Those workers losing jobs through no fault of their own had the safety net pulled from beneath them. This pushed a number of our fellow residents below the poverty line.
U.S. census surveys indicate that, in North Carolina in 2012, 17.2 percent of all individuals and 24.7 percent of children lived in households in poverty. Statistics also indicate that unemployment insurance programs in 2012 lifted 0.5 percent of N.C. residents and 0.5 percent of N.C. children above the poverty line. Thats 50,000 residents and 12,500 children of our North State.
Many more families and their children were able to stay in their homes, put food on the table and afford trips to another job interview with the help of unemployment insurance. These families were buoyed by this support and the encouragement it provided to stay with their job searches despite odds not in their favor. After the reform, those families receiving unemployment insurance payments will be less likely to exit poverty. Even at the maximum unemployment insurance weekly payment, a family of four relying upon that payment will remain below the poverty line.
Unemployment insurance is insurance not just for workers, but for businesses as well. If one state in the nation suffers from a high unemployment rate, the federal government provides funding for extended unemployment insurance payments. These payments allow commerce to continue unemployed families are able to continue to make house payments, to shop for food and clothing, to purchase gas for the car. The Great Recession taught us the disruptive effect in the housing market from families and businesses unable to make their scheduled payments. Removing or scaling back unemployment insurance gives up a potent weapon in fighting those disruptions.
In North Carolina, the N.C. Tax and Budget Center estimates that there was an estimated $600 million lost in income flows into the state in 2013 flows that would have stabilized the states economy and prevented job loss.
The choice to dismantle a well-designed if not always well-funded insurance program was a bad one for the families of the unemployed and also for the state economy. There is little sense in a decision to go it alone as a state when our unemployed residents are relatively worse off and the insurance system is ready to pay out for our residents. The savings from going it alone are small relative to the costs.
Our legislature has a responsibility to all of our states residents, and providing this insurance is part of that responsibility. The state legislature has the opportunity to reconsider its policy reform in 2014, and it should consider reinstating this insurance scheme in its earlier form. A first step will be to consider carefully Hagans proposal.
Patrick Conway is the chairman of the Department of Economics at UNC-Chapel Hill.