What largely explains the drop

By John Hood | Jul 09, 2014

RALEIGH — The next time you see or hear a politician, policy analyst, activist, or journalist say that North Carolina’s unemployment rate has fallen “largely” because of workers dropping out of the labor force, ask for a definition of the term.

I don’t mean the term “unemployment rate.” Generally speaking, when people use that term they mean the most-reported rate from the Bureau of Labor Statistics, the U-3 rate that excludes adults who’ve stopped looking for work. Nor do I mean the term “labor force,” which is actually not a separate statistic from BLS but is simply a total of the number of workers who say they are employed plus the number of people who say they are unemployed and looking for work.

No, the ambiguous term here is “largely.” You see, by any standard definition, it doesn’t belong in the sentence.

Last year, Gov. Pat McCrory and the General Assembly adopted several key changes in economic policy. They restructured and reduced state taxes, for example. They lightened the regulatory burden. And they reformed the state’s unemployment-insurance system — lowering the amount and duration of benefits in order to speed up repayment of billions of dollars in debt to Washington and thus avoid job-killing increases in payroll taxes. As a consequence of the benefit changes, North Carolina was also forced to exit the UI extended benefits program six months before the rest of the country did.

UI reform went into effect in July 2013. The other policies were enacted at about the same time but were not in force until 2014, although it is conceivable they may have had a signaling effect on business decisions during the latter half of 2013.

At the time, left-wing critics warned that the end of extended benefits, in particular, would have a negative impact on North Carolina’s economy. There weren’t enough jobs to accommodate the long-term unemployed, they argued, and the resulting loss of purchasing power would weaken the state’s recovery. Conservative politicians and economists pointed to strong empirical evidence that extended UI benefits keep unemployment rate artificially high — that workers are more likely to accept available jobs after their benefits end and that some employers are even more likely to create jobs in labor markets where extended benefits have expired.

We now have 11 months of data with which to test these predictions. From June 2013 to May 2014, the number of unemployed North Carolinians dropped by 87,403. The number of employed North Carolinians rose by 85,461. Thus the state’s reported labor force has declined by 1,942 since mid-2013, or about four-hundredths of a percent. (The national average decline during the same period was a tenth of a percent. Labor-force participation across the country is lower than it used to be for a variety of reasons, including the aging of the population.)

In other words, 98 percent of the drop in North Carolina unemployment since the end of extended benefits is attributable to workers gaining employment. Two percent is attributable to workers dropping out of the labor force. Other federal data also show substantial improvements in North Carolina’s labor market during the same period. Payroll jobs rose at a rate 16 percent faster than the national average. The state’s ratio of employment to population rose three times faster than the national average. And the number of discouraged and other marginally attached workers outside the labor force went down in North Carolina, not up.

Would you say that a basketball team losing by a score of 98 to 2 had “largely” outperformed its opponent? To suggest that labor-force decline is largely responsible for the state’s falling unemployment rate since the end of extended benefits and the enactment of other conservative reforms in mid-2013 is to do one of three things: to lie, to expose gross ignorance of the subject matter, or to employ an innovative definition of the term “largely.”

Nice person that I am, I don’t want to assume the worst. I’ll just wait for someone to send me that innovative definition. I always enjoy learning more about the English language.

Hood is president of the John Locke Foundation.