After more than two years of experience with North Carolina’s unemployment insurance reform, we can evaluate whether it delivered on its promise. Did unemployed North Carolina workers have an increased likelihood of finding jobs after maximum payments and the number of weeks of eligibility were slashed when compared with workers in the rest of the United States?
Evidence from the Current Population Survey conducted monthly by the U.S. Census Bureau indicates that the average working-age unemployed individual in North Carolina actually is less likely than an unemployed worker in the rest of the U.S. to be re-employed in the following month. .
At the beginning of 2011, North Carolina unemployed workers were equally likely to find a job in the next month when compared with other states’ unemployed workers. From 2011 through mid-2015, unemployed workers in North Carolina were less likely to find a job.
It was February 2013 when state lawmakers approved unemployment insurance reform, which reduced the average payment and reduced the maximum number of weeks that the involuntarily unemployed could collect those payments. When Gov. Pat McCrory signed the legislation, he said this reform “will help provide an economic climate that allows job creators to start hiring again.” About 170,000 North Carolina workers receiving insurance payments when the law took effect in July 2013 lost $780 million because of the reform.
Leaving the labor force
There is one area in which North Carolina’s experience is significantly different from that of the rest of the country. Beginning in 2013, North Carolina’s unemployed workers were significantly more likely on average to leave the labor force rather than continue searching for jobs. By the middle of 2015, an individual unemployed worker in North Carolina was 30 percent more likely not to search for jobs in the next month than the average unemployed worker in the rest of the U.S. Those leaving the labor force are the “discouraged workers,” and the reform seems to have given them a strong push toward leaving.
To ensure that those results are not caused by North Carolina’s abundance of college students and individuals past retirement age, I redid the calculations using only individuals between the ages of 25 and 60. The specific percentages differ a bit, but the general findings are the same. The likelihood that an unemployed individual will find a job in the next month in North Carolina has been below that of the average for the rest of the U.S. throughout the insurance reform period.
This survey does not tell us what these discouraged workers do next, so we can only speculate. A discouraged worker may sit at home, she may retire at an early age, he may cobble together a collection of odd jobs that don’t use his skills. None of these is a productive use of time and abilities – and these are the real wealth of North Carolina.
The reform has not had the effect on job creators that McCrory forecast. If there is to be a Carolina Comeback, it will begin by bringing our residents back into the labor force and providing our youth with the skills necessary to compete for and win available jobs. A policy that discourages workers should be reformulated or scrapped. Left in place, it creates an economy in which only some gain and many others are left behind.
Patrick Conway is chairman of the Department of Economics at the University of North Carolina at Chapel Hill.