Even as many businesses try to get forgivable loans to keep their employees at work, others are furloughing or laying off workers because unemployment benefits through July will be much more generous than whatever the business could pay. State law should make room to accommodate federal changes, such as easing the rules on eligibility and employer costs, but there’s no need to extend or increase state-provided benefits. The additional federal payments of $600 a week, with no job-search requirement, will be enough to ensure people stay out of the job market at least through July.
Since the economy went into lockdown, newspaper editorialists and state politicians have complained that North Carolina provides inadequate unemployment benefits based on how difficult it is to qualify, the low benefit amount, and the short benefit duration. In North Carolina, a person has to have worked at least half the year and have been paid over that time six times more than the average weekly insured wage. The maximum benefit for an unemployed worker is $350, with an average of $270 in North Carolina, compared to $372 nationally over the 12 months through February. Finally, when unemployment is low, as it was until mid-March, the benefits are available for no more than 12 weeks in North Carolina, compared to an average of 14.83 weeks people receive benefits nationally, with a maximum of 26 weeks.
Together, these rules mean one person receives benefits for every 10 who are unemployed. Politicians and editorialists have been quick to use this number, but don’t seem to care what it means. It doesn’t mean 90% of people who file a claim do not receive unemployment. It doesn’t even mean that 10% of people who are unemployed file a claim. It simply means that of the 182,598 unemployed people in February, roughly 18,000 collected unemployment insurance. Among the others, some had exhausted their benefits, some had not worked long enough to qualify, some had been self-employed and weren’t covered, some received benefits but did not follow through on the job search steps, some were ineligible because of drug tests, and by far the largest number were people who voluntarily left a job or chose not to apply for benefits.
It’s important to remember why North Carolina adopted its tight standards for unemployment eligibility. By 2013, North Carolina had borrowed $2.5 billion to pay unemployment benefits during the recession that began in 2007. The state’s unemployment rate was still 8.9%, even as the national unemployment rate was down to 8%. The changes went into effect in July, and by October, the state unemployment rate had fallen to 7.3%, nearly identical to the national rate of 7.2%. State and national rates have mostly tracked since then.
As a result of the eligibility changes and higher payments from employers, the state eliminated its debt by May 2015 and had a $3.9 billion surplus in its unemployment insurance trust fund account as of December 2019. No pot of money can go untouched by an ambitious politician, and this was no exception. “With NC Job Ready,” I wrote in March, “Cooper again wanted to divert $150 million a year from the unemployment trust fund to spend $60 million to $75 million a year on another new job training program.”
CARES Act benefits
Under the CARES Act, the federal government will provide unemployment benefits up to 39 weeks through Dec. 31, even if the state’s benefits expire. For states like North Carolina that have waived the traditional weeklong waiting period before a person could apply for unemployment, the federal government will cover the state’s share for the first week. The benefits will also go to adults who previously would not qualify. People with a short work history qualify. Small business owners qualify. Gig workers qualify. People who fail or refuse drug tests qualify. People who don’t search for work qualify.
Everyone on unemployment also will receive an additional $600 per week until July 31. With the extra $600 per week, the average benefit in North Carolina would climb to $870 per week, the equivalent of $21.75 per hour for a 40-hour week. Unemployed adults could make nearly $10 more per hour not to work than they could have earned at the job they lost.
Such generous unemployment benefits would make sense if it takes businesses until the end of July to get back to hiring, but it could also make the process of restarting the economy much harder because a worker would have to sacrifice $1,568 per month for the privilege of earning money.
Ryan Nunn, a fellow in Economics Studies at the Brookings Institution and policy director for The Hamilton Project, suggested the federal government might subsidize wages (12:00 of the podcast) to counter this perverse outcome.
North Carolina will be paying money from the Unemployment Insurance Trust Fund to cover benefits. Businesses are more likely to lay off workers who could make more unemployed than they could in their current role, and there is no additional cost to the business. As the unemployment rate increases, the duration of benefits paid by the state will also lengthen. All of this is already on its way without making wholesale changes to the system that made the current surplus possible.
Lawmakers and the governor would do better to seek ways to get people back to work quickly than to find ways to keep unemployment benefits higher, longer.
Joseph Coletti is a senior fellow at the John Locke Foundation, examining fiscal and tax policy.