In the midst of a steady economic recovery, unemployment shrinks both as a percentage and as an issue. But in North Carolina, it should be cause for rising concern.
Even in good times, a shifting economy throws people out of work in large numbers – 1,000 recently laid off at Freightliner in Rowan County, 500 at MillerCoors in Rockingham County. More importantly the state’s unemployment insurance benefits have been so severely cut that they provide negligible protection for today’s unemployed and will offer far less cushion for the state’s economy when the next recession hits.
Last week the damage done to the state’s unemployment insurance system got a full review in reports from three progressive groups, the NC Budget and Tax Center, the National Employment Law Project and the Urban Institute, all pushing to have lost benefits restored.
Here’s the executive summary: If you have a job, don’t lose it.
If you do, you will have to turn to a UI system that has morphed from a safety net into a trap door. The unsuspecting newly jobless will not like the changes, but those who pushed the changes through the legislature and signed them into law are touting the tougher, miserly system as a great success.
As the 2016 election season heats up, voters will hear a lot from the state’s Republican leaders about how they worked two wonders with unemployment insurance.
First, in 2013 they cut the level and duration of unemployment benefits and, voila, the unemployment rate went down. (The implication being that the unemployed didn’t need a benefit they could survive on. They needed a little desperation to get them off the couch.)
Second, voters will hear about how fiscal discipline allowed North Carolina to pay off early its unemployment insurance debt to the federal government. Federal loans helped cover a huge spike in unemployment claims during the Great Recession.
But beneath these two “wonders” are mean-spirited and deceptive realities. To start, the changes themselves violated a requirement of federal unemployment aid that state benefits not be reduced. The Republican-led legislature did it anyway, costing the state $780 million in federal payments and cutting off benefits for thousands of the long-term unemployed at a time when there were three job seekers for every job.
Then there is the draconian scale of the changes made by House Bill 4. The maximum weekly benefit was reduced from $525 (with an index to inflation) to $350 (without an index, so it will shrink as inflation grows). That’s the largest decrease of the maximum benefits amount in U.S. history. Meanwhile, the eligibility period for receiving benefits was reduced from 26 weeks to a sliding scale that ranges from 20 to 12 weeks depending on the unemployment rate. Currently, the eligibility period is 13 weeks, the second shortest in the nation behind Florida’s 12.
Meanwhile, access to these skimpy benefits has been narrowed by tighter eligibility requirements. The National Employment Law Project found that before the changes, 24 percent of the jobless received benefits. Now it’s 12 percent. That’s the second lowest rate in the nation. These cuts and the narrowing of eligibility don’t only hurt individuals. They will magnify the impact of the next recession by draining buying power and weakening demand.
George Wentworth, an attorney with the National Employment Law Project, worked for three decades with the Connecticut unemployment insurance system. He said North Carolina’s cuts mean the unemployed will be forced into “making decisions about which bill they pay and which they do not.” That’s not good news for businesses.
But what about that rapid payoff of the federal debt? That’s a sorry story, too. The debt was there because employers paid too little in unemployment insurance tax in recent decades. When a big recession hit, the fund’s reserve was insufficient and the federal government had to help. The debt was to be paid back by a temporary surtax on employers.
The cuts in benefits were so severe that the system’s payout was cut nearly in half. That’s what accelerated the debt payoff. It wasn’t done by thrifty lawmakers. It was done on the backs of the jobless, who paid most of the debt through cuts in their benefits. Large corporations, who enjoyed years of reduced unemployment taxes and more recently cuts in corporate income taxes, paid less than half of the debt. That unfairness is compounded by the fact that the benefit cuts paid off a debt that was temporary, but the benefit reductions are permanent. Indeed, the system is now so flush there will be pressure to cut the unemployment tax on employers.
This is how Republican lawmakers and Gov. Pat McCrory “fixed” unemployment insurance. So hope you’re not let go. There’s barely a net left to catch you.
Barnett: 919-829-4512, or nbarnett@newsobserver. com