Opinion: Daily Journal

NC and Discouraged Workers

North Carolina has too many discouraged workers. About that fact there can be no doubt.

Under the Bureau of Labor Statistics definition, discouraged workers are those who would otherwise be in the labor force but have gone so long without finding a job that they have stopped looking. According to critics of North Carolina’s July 2013 exit from extended benefits under the unemployment insurance system, virtually all of the state’s subsequent decline in the standard unemployment rate is attributable to previous UI recipients becoming discouraged workers.

More generally, the critics allege that North Carolina’s labor market hasn’t improved much at all over the past three years of Republican governance in Raleigh, which has featured tax relief, regulatory relief, and other conservative reforms.

There is much we don’t know about recent economic trends in North Carolina and the rest of the country. Monthly changes in the two main measurements, the household survey and the employer survey, are uncertain, sometimes contradictory, and frequently revised after the fact.

Based on the preliminary data, however, the critics’ arguments don’t explain the situation very well. North Carolina’s labor force has been shrinking since early 2013, not just since July, and has actually declined at a slower rate since the end of extended benefits. Moreover, as the Manhattan Institute’s Diana Furchtgott-Roth pointed out in a Politco piece last week, the decline in labor-force participation is a regional phenomenon, not one limited to North Carolina, and thus couldn’t have been caused by changes in North Carolina’s UI program.

There’s another way, a more direct way, to test the broader thesis that recent conservative policies in North Carolina have been more economically discouraging than economically encouraging. BLS calculates several measures of the labor market that are broader than the standard U-3 rate. The U-4 rate, for example, includes jobless individuals who are continuing to look for work (U-3) plus discouraged workers.

Unlike U-3, the U-4 is not calculated on a monthly basis. Instead, BLS computes rolling annual averages updated every quarter. Still, what data we have can be used to compute a “discouraged worker rate” by subtracting U-3 from U-4.

For the most recent period, October 2012 through September 2013, approximately half a percent of working-aged North Carolinians were discouraged workers. That’s the difference between a U-4 rate of 9.1 percent and a U-3 rate of 8.6 percent. It includes those who dropped out of the workforce both before and after the end of extended benefits. North Carolina’s discouraged-worker rate for 2012-13 precisely matched the national average (a 8.1 percent U-4 minus a 7.6 percent U-3).

Now let’s look at the calculation for October 2010 through September 2011, the period during which Republicans won control of the state legislature and adopted their first bills and state budget. North Carolina’s discouraged-worker rate for 2010-11 was 0.7 percent (a 11.2 U-4 minus a 10.5 U-3), or slightly above the national average of 0.6 percent (9.8 minus 9.2).

There are not big differences, admittedly. But they certainly cannot be used to support the contention that North Carolina has experienced more worker discouragement than other states have. Moreover, if you look at the broadest measure of the labor market, U-6, which includes discouraged workers, other marginally attached workers (those who have gone back to school for retraining, for example), and part-timers who would prefer to work full-time, North Carolina’s rate dropped by 3 percentage points from 2010-11 to 2012-13 while the national average declined 2.1 points.

Is there a distressing number of discouraged workers in North Carolina? You bet. But the problem is national, not local. America’s economic recovery has been languid by historical standards. Job creation has been substandard. North Carolina has done a bit better than the nation as a whole. Make of that what you will — but don’t expect it to become a serviceable grindstone for your partisan ax.

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Hood is president of the John Locke Foundation.