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Unemployment insurance can serve as an investment in state's residents

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By James W. Kleckley

Sunday, April 29, 2018

One of the more timely economic statistics is unemployment insurance (UI) claims.

The UI claimants are a subset of the total number of unemployed. They help us understand the magnitude of layoffs and help measure the difficulty experienced by job-seeking workers.

The data for North Carolina, which dates back to 1988, shows that the cyclical variation in the 13-week average of continuing unemployment claims is similar to the nation. We have experienced three recessions during this 30 year period. The third downturn (our Great Recession) lasted from December 2007 until June 2009 and generated a historical spike in UI claims.

The record spike in North Carolina approached 203,500 recipients in February 2010. Then, as we found nationally, the number of claims began to fall.

In 2013 the fall accelerated over the national pace. Today the number of claims are near 22,000 — a total radically below anything that the old north state had experienced since the 1980s.

Some would say that this low count is due to the dynamic North Carolina economy. In reality, it is due to the economy and, more importantly, to a change in the North Carolina UI Law.

The July 2013 unemployment rate was 7.9 percent. This was the month that North Carolina cut the maximum monthly benefit and dramatically reduced the number of eligible weeks from 73 to 20.

The reduction in weeks meant that the continuing claimant rolls dropped substantially faster than the drop found in other states.

When North Carolina made the change to the length and level of benefits, it was running a very large deficit in the UI Trust Fund. It made sense to address the deficit in this rainy day account, but the choice to reduce and eliminate the shortfall was largely on the back of the unemployed workers.

The timing of this action was also attention-grabbing. Not only was the unemployment rate high, the law took effect 18 months before the number of wage and salary jobs in North Carolina returned to its pre-recession peak. The long-term claimants lost benefits and were competing with new entrants to the workforce, such as high school and college graduates.

In essence, 2013 and beyond remained a difficult time for these job seekers.

February 2018 marked eight years since the recession-induced employment trough. Since that historical bottom, the state has grown faster than the nation —16 percent compared to 14 percent. The more rapid growth suggests that the number of UI claimants should be relatively lower, but not dramatically lower.

The Trust Fund deficit surpassed $2.83 billion in 2012. It has since been eliminated. Moreover, the recent Trust Fund Solvency Report showed a $3.17 billion surplus.

The UI Trust Fund is structured to make unemployment benefits available for individuals who lost their job through no fault of their own. I would argue that reversing the tax law changes would be appropriate.

Increased availability of benefits would be an investments in our workforce. The dollars paid should not be viewed as a burden to North Carolina.

I am simply suggesting that the state raise the guidelines to the national standard. Why? Most of us are confident that there is no new recession on the horizon to drain the trust fund. Second, the dollars paid will help more individuals who are between jobs pay their bills.

Third, these dollars flow back into the economy. In fact, some recent calculations suggest to me that for every $100 paid in benefits, the economic impact to the state should be at least $128. If you view the UI program as an investment into its citizens, that’s a pretty good return.

James W. Kleckley is the director of Professional Services and Research in the College of Business at East Carolina University.

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