by Mitch Kokai
Senior Political Analyst, John Locke Foundation
I’ll leave it to John Hood to respond to the data points used in a New York Times blog entry about North Carolina’s economic experience since the end of federal extended unemployment benefits (if John decides it’s worth the effort to correct the record again).
I’m more interested in two other elements of University of Michigan economist Justin Wolfers’ commentary. The first involves this passage:
The question of whether to provide those benefits is an important one. But perhaps the answers should depend more on social values than on macroeconomic implications. After all, the point of unemployment insurance isn’t to boost the economy as a whole, but rather to ensure that an unlucky few don’t shoulder an unbearable burden. Whether we’re doing that is a question more of values than of economic statistics.
Wolfers is correct that those who argue in favor of extended unemployment benefits ought to emphasize social values. Why? The economic statistics are against them. Transfer payments like unemployment benefits do not create some sort of economic boon. Reducing those transfer payments does not create an economic catastrophe.
Professor Wolfers can be forgiven for not knowing that the most vocal left-of-center critics of North Carolina’s 2013 unemployment policy changes frequently made the exact opposite argument: Unemployment benefits boost the economy, and ending them would cause drastic economic harm.
The second notable passage in Wolfers’ commentary follows the first:
The policy shift was particularly striking because most of the cost of providing benefits to the long-term unemployed had been paid for by the federal government. Effectively North Carolina refused to allow the federal government to put money into the pockets of those who had been without work for a long time. The stated goal was giving the unemployed more incentive to find new work.
Here’s another instance in which a better understanding of North Carolina’s local circumstances might have improved Professor Wolfers’ assessment of this case. First, while the cost of providing benefits for the long-term unemployed had been paid by the federal government, the state government was paying the price for keeping state policies in place that made the extended federal benefits possible. North Carolina had run up a debt to the federal government of more than $2.5 billion borrowed to pay for state unemployment benefits. Previous legislatures had done nothing to address the debt, and the bill was coming due. Automatic tax increases started to take effect to pay off the debt.
Not wanting to see continual, automatic tax rate increases, North Carolina legislators reduced maximum size and duration of state unemployment benefits to speed the process of repaying the debt. That decision triggered the end of federal benefits, not any legislators’ desire to give the unemployed more incentive to find work. In fact, legislative leaders pleaded with their congressional delegation to seek an exemption that would have enabled federal extended benefits to continue.
In other words, the second and third sentences in the quotation are wrong. Wolfers could have written with more accuracy: “Effectively the federal government refused to allow North Carolina to take steps to limit automatic tax increases tied to repayment of a debt the federal government was quite content to maintain and even grow. The stated goal of North Carolina legislators was to pay off that debt much more quickly than a do-nothing policy at the state level would have facilitated.”
As for the numbers themselves, I quote from John Hood’s July 9 column:
Using the correct starting point (June 2013) and restoring the Charlotte metro, I re-ran the numbers through May 2014. North Carolina’s rate of job creation (1.9 percent) exceeded the average for the region [Dean] Baker preferred, the South Atlantic States (1.7 percent). Using the proper ending point for analyzing the state’s solitary exit from extended benefits (December 2013), North Carolina’s rate of job creation (1.5 percent) was half again as fast as the regional average (1 percent).