Prosperity Watch Issue 47, No. 1: How Low Can North Carolina Go?

March 10, 2015

Cuts to unemployment benefits in North Carolina have made it harder for jobless workers to get back on their feet in an economy that is still providing too few jobs for those who want to work. New research from the Economic Policy Institute now finds that North Carolina has seen the steepest decline in the number of short-term jobless workers (those out of work for 26 weeks or less) who receive unemployment insurance. While nationally, the reach of state unemployment insurance has reached a historic low compared to the pre-Great Recession period with just 23 percent receiving state unemployment insurance, the decline in North Carolina’s recipiency means the program has drastically reduced support for workers who have lost their job and are looking for a new one. 

The analysis of short-term recipiency rates takes into account just those jobless workers who are accessing the traditional 26 week programs offered by the state and uses a 12-month moving average. Using this measure, North Carolina ranks 43rd in the percent of short-term unemployed workers, those who have been out of work for 26 weeks or less, who receive unemployment insurance for 2014. Just one in five North Carolinians who are out of work receive unemployment insurance compared to 35 percent of jobless workers nationally. This is down from the state’s rank of 24th in July 2013 when 36.8 percent of short-term unemployed workers received benefits.

Moreover, North Carolina has had the steepest decline in its recipiency rate since cuts went into effect.   Prior to the cuts, North Carolina had a recipiency rate just 1.3 percentage points below the rate of all other states that did not cut maximum durations, but now sits 17.1 percentage points below.  

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Of course, recipiency of unemployment insurance should decline in a recovery.  As jobs return and workers move into employment, fewer people will receive unemployment insurance. That said, improving economic conditions do not fully explain the drop off in unemployment recipiency in North Carolina over the last few years. The recovery has not completely erased the challenges to finding employment in North Carolina and the national analysis shows that states reducing available weeks have seen far steeper declines in recipiency than states that did not. Policy choices are partly driving the historic decline in unemployment insurance’s reach. 

Low levels of recipiency in the unemployment insurance program reduce its effectiveness.  Unemployment insurance works by providing temporary and partial wage replacement to a sufficient share of jobless workers so that the economy doesn’t further fall into further decline.  With fewer consumers in the economy and fewer dollars available to purchase goods and services, businesses are often forced to cut back and families face a host of financial hardships—unpaid bills, mounting debt, declining savings and even foreclosure—both of which can further destabilize the broader economy.  Economists therefore recommend that unemployment insurance can best serve its income support and economic stabilizing role by maintaining higher recipiency rates.  Although a specific threshold has not been identified for recipiency to reach, it is certainly clear from the research that recipiency higher than it is today in North Carolina would go a long way to achieving essential stability goals for families and the broader economy.  

 

 

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