Newscom
On January 1, maximum unemployment insurance (UI) benefits dropped across most of America. Not in North Carolina. The Tar Heel State already ended extended UI benefits in July 2013. What happened afterward has caused considerable controversy.
No one disagrees that North Carolina’s unemployment rate began rapidly falling almost immediately after the state cut the benefits. The state’s unemployment rate dropped 1.5 percentage points between July 2013 and November 2013, the largest decrease in the nation over that time.
But many commentators, on both the left and the right, argue that this happened only because UI claimants dropped out of the labor force. They argue that North Carolina’s experience shows cutting or eliminating extended UI benefits will harm claimants with few offsetting economic benefits.
The data do not support this interpretation. Labor force participation rates fell sharply after North Carolina ended its extended UI benefits. But they fell sharply before, too. The rate of decrease did not change. Unless one argues that North Carolina’s participation rate would have suddenly leveled out, it becomes hard to attribute the continued drop to UI policies.
North Carolina’s employment-to-population ratio, however, stopped falling shortly after the extended UI benefits ended and has since improved. Most of the unexpected improvement in North Carolina’s unemployment rate since July comes from an improving labor market, not the continued drop in labor force participation.
So did ending extended benefits boost North Carolina’s economy? Possibly, but it is too soon to draw definitive conclusions. The Bureau of Labor Statistics will update its seasonally adjusted 2013 unemployment figures; these numbers will be revised soon. State estimates also have much higher margins of error than the national figures—more of their movement represents statistical noise. Researchers can look at very accurate payroll employment data based on tax payments when it becomes available in nine months.
Unemployment fell rapidly after North Carolina ended its extended UI benefits. The data available do not yet allow analysts to conclude much more than that.