BTC REPORT: What's the Harm? Plenty - Unemployment Insurance Changes Threaten the State's Economy and Hurt the Unemployed

By Alexandra Forter Sirota, Budget & Tax Center Director 
July 2014

The changes made to the state’s unemployment insurance system a year ago have caused pain for North Carolina workers and communities, and things will get even worse for many because of new limits to how long anyone can receive insurance that took effect July 1.

Two changes—lowering the maximum duration of weeks and a new formula that significantly reduces average weekly insurance amounts—fall most heavily on jobless workers in areas of the state’s highest unemployment, and primarily in rural counties. The cumulative effect of these changes is a double whammy for people out of work through no fault of their own – the amount of money they can collect has gone down and so has the numkber of weeks they can collect it. As of July 1, North Carolinians who have lost their job through no fault of their own will be able to receive a maximum of only 14 weeks of unemployment insurance compared to the previous maximum of 26. No other state offers fewer weeks. Meanwhile jobless workers qualifying for unemployment insurance will get nearly $300 less on average each month.

The combined result will be a significant reduction in the capacity of jobless workers to afford the basics for their families, let alone put gas in their cars to get to job interviews. And the ripple effect of these policy changes suggests the potential to slow the state’s economy. As jobless workers continue to struggle to find work in a labor market with too few jobs, there will be fewer consumers for goods and services, meaning local businesses have less demand and might lay off their own workers or be unable to sustain new positions.

As the changes in North Carolina’s unemployment insurance system continue to be implemented, there needs to be a continuing review of the empirical data on how the unemployment insurance system is operating under those changes and how it is impacting jobless workers. It is clear from the data to date that stopping the sliding scale for maximum weeks and returning to the prior formula for calculating benefits are essential first steps to minimizing the harm of the changes overall. As the state pays down the debt quickly on the backs of jobless workers and as the decline in the state unemployment rate fails to refl ect an improved labor market for communities and jobless workers, policymakers must reverse course and consider ways to put in place a forward-financing system that temporarily and effectively supports jobless workers who have lost their jobs through no fault of their own.

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