North Carolina’s cuts to unemployment show that ending unemployment does not cause people to go get jobs.
Unemployment insurance is back in the news as emergency benefits will end for 1.4 million people later this week after Congress refused to extend the emergency program enacted in 2008.
This development has brought to the surface a very old divide between liberals and conservatives over unemployment payments in general. Broadly speaking most liberals favor generous benefits for people who become unemployed through no fault of their own. They favor this both out of humanitarian grounds, people without money need money, and because they think it makes sound policy sense for the economy as a whole. According to Keynesian economy theory, which most liberals favor, since in the entire economy your spending is my income, big “shocks” like lots of laid off workers will mean less spending in the economy which in turn will lead to more layoffs, ultimately resulting in a downward cycle of social wide poverty and unemployment. The liberal solution to this problem, which Keynes advocated in the 1930’s, is to make up for “shocks” to the economy with government spending on things like unemployment benefits.
Many conservatives do not favor this analysis, or at least haven’t since 2009. Instead they often see long term benefits for the unemployed as a hindrance to economic growth because as Republican Congressman Paul Ryan says those types of programs can, “…turn the safety net into a hammock that lulls able-bodied people to lives of dependency and complacency, that drains them of their will and their incentive to make the most of their lives.” Republican Senator from Kentucky Rand Paul has also repeatedly made similar arguments.
So who is right? Answering questions like this about politics and economics can be very difficult. After all, politics isn’t like chemistry where you can do an experiment a thousand times in a lab. However sometimes in politics and economics events lead to conditions that come as close as possible in the real world to an actual experiment that you can probably ever get.
One such experiment happened in North Carolina over the last year. Back in July North Carolina drastically cut unemployment insurance from a maximum of 99 to 19 weeks, and from a maximum benefit of $535 to $350. Under Ryan and Paul’s thinking this should have led to the unemployed getting up off the couch and finally finding a job. So did they?
No they did not. As Evan Soltas in Bloomberg points out the results were a disaster as most of the unemployed simply dropped out of the labor force, “…North Carolina’s labor force began to shrink. The state is experiencing the largest labor-force contraction it’s ever seen—77,000 fewer people were working or searching for work this October than a year ago.” In the long run sadly this will just make North Carolina collectively poorer as fewer people are participating in the economy while making the lives of many people who drop out of the labor force that much harder.
To make matters worse these folks’ hardship won’t be going away, instead, as Soltas points out, it will just cause more strain on private charities and nonprofits:
Meanwhile, the burden of easing the financial distress caused by unemployment has shifted from public programs to private charities. According to Alan Briggs, executive director of the North Carolina Association of Food Banks, they’re struggling to cope.
“The local pantries are saying, ‘Give us more, give us more, give us more,'” Briggs said. “All that the county social workers can do now is give those in need the phone number for the local food bank.” As he told a local news station, his food banks had been “asked to be the safety net of the safety net.”
I hope this evidence causes Congress to reconsider their foolish decision to cut emergency unemployment benefits, but I doubt they will. In chemistry it’s easy to prove an alchemist is a fool if he thinks he can transmute lead into gold, in politics it’s a lot harder.
Like The Good Men Project on Facebook