Allan Freyer N.C. Budget and Tax Center
April 5, 2014
Gov. Pat McCrory has been at it again lately — incorrectly claiming that his decision to dramatically cut unemployment benefits is responsible for turning around the state’s job market. During a visit to Morganton last week, the Governor stated:
“There’s nothing worse than if you have a job opening and someone decides to take a government check instead. So we had to bring the two together,” he said. “We made a decision [to cut unemployment benefits]. And that decision alone is the one lone factor, in comparison to any other state, which I think has helped North Carolina lower its unemployment rate drastically in the last five months.”
While the Governor is correct that the state’s unemployment rate has dropped over the last year (from a revised 8.6 percent in February 2013 to 6.4 percent a little over a year later), he couldn’t be more wrong about why the rate has dropped — and what it means for the state’s economy. The unemployment rate is falling because the labor force is contracting, not because jobless workers are moving into jobs.
Let’s take these one at a time.
First, contrary to the Governor’s claims, thousands of unemployed workers would love to find jobs, but there are just not enough available to meet the needs of the jobless. There are three unemployed workers for every one available job opening—that means that even if every single one of the job openings mentioned by the Governor were somehow miraculously filled tomorrow, there would still be two unemployed workers left with nowhere to go.
And while some workers may not have the requisite skills to fill the few available job openings that do exist, it doesn’t mean that they don’t want to gain them. It’s just a lot harder to retrain when state workforce development funding has been cut (within the same bill that cut unemployment insurance), investments in the community college remains low, and fewer staff are available at one-stop job centers to provide career counseling and support.
Next, the unemployment rate fell over the last year because the labor force dropped, not because the majority of unemployed people found jobs. Since the unemployment rate is calculated by comparing the labor force to the number of unemployed people, when the labor force goes down, the unemployment rate can also go down, too, even if the number of unemployed workers remains high.
And that’s exactly what happened over the past year — the labor force contracted by more than 60,000 — to the lowest levels since 2011. Meanwhile, our state’s overall population experienced rapid growth. And whenever the population is growing, but the workforce is shrinking, the economy is moving in the wrong direction.
If joblessness was truly being reduced, we would expect to see unemployed workers moving into employment, but we don’t. Just four out of every ten workers moved from joblessness into employment last year. The rest gave up and dropped out of the workforce altogether.
Lastly, the notion that cutting unemployment benefits is the sole factor explaining our state’s “special” job growth over the last year is ridiculous — for the simple reason that by any measure, North Carolina’s job creation over the last year hasn’t been special at all. If cutting unemployment benefits — a policy undertaken by no other state — were truly responsible for creating a special boom in job creation, then we would expect the state to have created jobs at much faster rate than the rest of the nation.
But when we look at our state’s rate of job creation since February 2013, it turns out North Carolina experienced a 1.2 percent rate of employment growth over the last year while the national average of job creation was 1.6 percent. So much for the idea that cutting unemployment benefits made the state’s job creation more “special” than the rest of the nation.
Even worse for the governor, North Carolina’s job creation in 2013 was much less “special” than North Carolina’s job creation in previous years. According to preliminary estimates released last week, North Carolina created just 46,000 payroll jobs over the last year. This is significantly less than the 69,000 jobs created in 2012, and the 62,000 jobs created in 2011.
So the lesson here is simple—the Governor’s claims about unemployment are just wrong.
Allan Freyer is a Public Policy Analyst at the North Carolina Budget and Tax Center.