North Carolina created an experiment for the rest of the country when in July it cut off unemployment benefits after 26 weeks. The early results of that experiment are in, and so far it appears that extended unemployment benefits may have fewer benefits for the broader economy than thought.
When the federal emergency unemployment compensation program expired Dec. 28, all unemployed Americans lost access to unemployment benefits beyond 26 weeks. Democrats have pushed for reinstating the benefits, claiming that they not only aid families suffering a spell of unemployment, but also benefit the macroeconomy by boosting the recipients' spending.
Democrats also have argued that ending unemployment benefits will not cause beneficiaries to take jobs earlier, but instead push them out of the labor market altogether since unemployed workers are required to keep looking for work and thereby remain in the labor force to receive benefits.
With almost a half a year's data in, however, the unemployment rate has fallen steeply in North Carolina, and there has been no apparent surge in labor force dropouts.
That's the conclusion that four economists from the University of Pennslyvania, the University of Oslo, and the Federal Reserve Bank of New York reached after assessing three datasets and comparing North Carolina's labor market with those of the neighboring states South Carolina and Virginia.
The researchers warn that it's too early to make definite statements about what's happening in North Carolina, with only several months' numbers available. But they write that "employment has risen according to all available sources of data," including the household and business surveys that the Labor Department uses to publish the monthly jobs report.
Furthermore, North Carolina's labor force increased following the reform as measured in the household survey, and showed no decrease relative to South Carolina's labor force in another government survey. That result suggests that unemployed workers did not quit the labor force in large numbers when benefits expired.
North Carolina's experience will continue to provide an example for the rest of the country, at least for the next few months before all states are forced to follow its lead by the cancellation of the program at the federal level.
The authors of the study examining the North Carolina data had previously published a paper asserting that unemployment benefits can raise unemployment through a somewhat complicated process. Namely, they found that unemployed workers receiving benefits who turn down positions cause businesses to raise their offered wages for everyone, lowering job growth.