In NC, Did Cutting Benefits Really Cut Unemployment?

By Aaron Keck Posted March 16, 2014 at 9:59 am

CHAPEL HILL – Last year, the General Assembly voted to cut off unemployment benefits for thousands of North Carolinians—and the unemployment rate went down, faster in this state than anywhere else in the country.

But were those two connected—and if so, how?

Republicans say cutting off benefits motivated people to get back on the job market; Democrats say the move actually discouraged people, to the point where they dropped out of the job market altogether.

But Mark Vitner—managing director and senior economist at Wells Fargo—says he’s skeptical all around.

“As with many things in economics,” he says, “if you take the data and twist them the way you want, you can say just about anything.”

Vitner says he doesn’t believe the unemployment rate fell solely because people dropped out of the job market: North Carolina’s labor force did decline in 2013, but the decline was actually faster in the first half of the year, before the state cut off benefits.

Furthermore, Vitner says, “(while) we had the biggest drop in the unemployment rate in the country, we didn’t have the biggest drop in the labor force in the country – not even close to it.”

That suggests North Carolina was, in fact, getting people back to work in 2013, at a faster rate than most other states.

Governor Pat McCrory and other Republicans have touted this as a “Carolina miracle.” But Vitner says not so fast.

“If you’ve been unemployed for long periods of time and you’ve received emergency benefits, odds are you’ve exhausted your savings,” he says. “I think many people, many of those folks, took jobs that they wouldn’t have taken in the past – because they were looking for something to replace the job that they had lost – but now they’ve got a different concern, which is ‘I’ve got to get money in the door’…

“And so part of that increase in leisure and hospitality employment and retail trade that picked up in the second half of the year may have been people saying, ‘well, I’ve got to take something because I’ve got to get money coming in.’ And that’s not a success story.”

Vitner made those comments at the Chapel Hill-Carrboro Chamber of Commerce’s annual economic outlook briefing, last week Thursday at the Sheraton Chapel Hill.

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