North Carolina's Unemployment Benefit Experiment

July 10, 2014

North Carolina reduced its unemployment-insurance benefits and quit the federal extended-benefits unemployment program last year. But while critics exclaimed that the state was waging a "war on the unemployed," North Carolina saw one of the biggest improvements in the labor market of all 50 states, writes John Hood, president of the John Locke Foundation.

Indeed, the reduction in benefits hasn't seemed to hurt North Carolina:

  • In the first six months following the reduction in unemployment benefits (June 2013 to December 2013), North Carolina's labor market improvement, as well as its economic growth, was among the best in the country. At that time, it was the only state not offering extended unemployment benefits.
  • During those six months, payroll jobs rose 0.8 percent across the country but increased by 1.5 percent in North Carolina.
  • Similarly, North Carolina's unemployment rate fell from 8.3 percent in June 2013 to 6.9 percent in December 2013, a 17 percent decline. Nationwide, the unemployment rate only fell by eight-tenths of a point, down to 6.7 percent.

Some critics of the reform have said that the drop in unemployment was due to North Carolinians dropping out of the labor force, not getting jobs. However, North Carolina -- along with other Southeastern states -- began seeing labor participation drops before the reform, starting in February 2013. Moreover, North Carolina's labor force has dropped only 0.04 percent since June 2013, compared to a drop of 0.1 percent in the United States overall.

Source: John Hood, "North Carolina Got it Right on Unemployment Benefits," Wall Street Journal, July 4, 2014.

 

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