State needs Unemployment Insurance system that provides adequate wage replacement, recognizes time it takes to find a job so state can keep workers in labor force

RALEIGH (June 19, 2019) – Due to changes made to the state unemployment insurance system in 2013, it’s now harder for jobless North Carolinians to collect unemployment insurance or – if they do – replace wages, according to a new report from the Budget & Tax Center, a project of the NC Justice Center.

The system is serving too few jobless workers for too short a time and providing too little in wage replacement, meaning that moving out of the labor force is more likely than moving into employment.

Unemployment insurance now does less to stabilize the budgets of temporarily unemployed workers – who lost jobs through no fault of their own – as well as the communities where they live, particularly in rural areas and others where unemployment remains concentrated, the report said. This is despite the fact that the state’s Unemployment Insurance Trust Fund has reached solvency standards that indicate the funding of the program in good times has reached sufficient levels to pay out benefits in a downturn.

Read the full report.

“While North Carolina may be positioned well for the next downturn in this regard, the failure to provide adequate stabilization to those who have lost their jobs and to the employers who require workers could undermine the ability of the system to perform when the next significant economic disruption occurs,” said Alexandra Sirota, director of the Budget & Tax Center and author of the report.

The system designed to reach those who need support with adequate wage replacement and time to seek new employment is failing in three key ways:

  • Too Few: Only 9.91 percent of the state’s jobless workers received unemployment insurance in the last quarter of 2018, ranking North Carolina last in the country. Prior to changes made in the 2013, North Carolina ranked 24th. Changes to ensure those seeking unemployment insurance have multiple venues to apply and that those who have lost their job due to relocation, domestic violence, or care of sick family members receive support will help address these issues, as will fixing the duration of unemployment insurance overall.
  • Too Short: The average duration of unemployment insurance in North Carolina is just 8.92 weeks, ranking North Carolina last in the country. This short duration is, in part, a function of the state’s arbitrary sliding scale that ties the number of weeks of benefits to the state unemployment rate.
  • Too Little: North Carolina provides just $261.10 each week on average to jobless workers and a fixed maximum of $350. The state is replacing just 32 cents for every $1 in lost income, circulating far fewer dollars in the economy than recommended by economists, who typically seek a replacement rate of at least 50 percent.

The unemployment insurance system’s purpose is to provide temporary, partial wage replacement at a level that staves off a drop in consumer spending that would destabilize the broader economy. According to the report, failing to design the system to cover a significant share of those who have lost their jobs and to provide payment that is meaningful relative to the wages earned through previous work, the system is not as effective as it should be at serving this broader goal.

Because there are still too few jobs for those who want to work, two troubling tends have emerged: persistently low labor force participation and the failure of wage growth to accelerate. Taken together, these outcomes have a depressing effect on the broader potential for economic growth and in the long-term value placed on work. When combined with too few dollars circulating the economy, there is a dampening effect on demand for goods and services as well as job creation – which cannot be fixed by the promise of trickle-down tax cuts.

“An unemployment insurance system is a critical antidote to the downward spiral that can occur from a job loss,” said Bill Rowe, Deputy Director of Advocacy with the Justice Center. “It is important to fix the system before the next downturn comes to North Carolina so that workers, businesses, and the entire state economy are positioned to recover quickly and equitably.”