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North Carolina’s Costly Cut in Jobless Benefits

North Carolina, where unemployment is over 9 percent, is close to enacting a breathtaking cut in jobless benefits that would surely prove extremely harmful for unemployed workers — and very bad for the state’s economy.  The proposal would:

  • Slash regular state unemployment insurance (UI) benefits by nearly three-quarters. The proposal cuts the maximum benefit amount by a third, cuts the number of weeks of benefits from 26 to as few as 12 (depending on the unemployment rate), and cuts the number of workers who can receive benefits in the first place (such as by disqualifying workers who must leave their jobs to care for a disabled family member), among other cuts.

    Figures that the highly respected Upjohn Institute produced for the state estimate that the proposal would cut the total amount of UI benefits that jobless workers would receive in North Carolina — compared to what they are expected to receive under current law — by about 55 percent next year and by about 72 percent in 2021 (see graph).

  • Imagen
  • Effectively bar long-term unemployed workers from receiving emergency federal benefits. The cut in state-funded benefits would make North Carolina’s jobless workers ineligible for extra weeks of emergency benefits, fully funded by the federal government, that the long-term unemployed in every other state can receive.  At a time when more than half of North Carolina’s jobless workers exhaust their regular state benefits before they are able to find work, this move is particularly cruel.  It also would hurt the state economy by turning away about $780 million in federal funds that otherwise would go to the unemployed, who would spend most of it in North Carolina.

Proponents of the cut rightly point out that North Carolina’s UI system, like many other states, faces serious financial problems.  Those problems, however, stem not only from the unusual depth and length of the recession but also from imprudent tax cuts.  In the 1990s, North Carolina cut UI taxes that businesses pay too low to sustain its system during a recession, a mistake from which the state has never recovered (see this graph).  Slashing benefits now would effectively force workers to pay for those ill-advised tax cuts.

The best approach to handling the financial strain that the recession has put on state UI systems is a patient and balanced one that includes phased-in tax increases and, when necessary, temporary benefit freezes or prudent cuts.  Colorado has enacted a sensible plan, for example.  North Carolina, on the other hand, appears headed in entirely the wrong direction.