MEDIA RELEASES: Changes to unemployment insurance harm jobless workers and economy

RALEIGH (February 20, 2014) — Cuts to unemployment insurance in North Carolina have made it harder for jobless workers to support their families and make ends meet in an economy with simply too few jobs to go around, according to a report released this morning by the North Carolina Justice Center.

The recent decline in unemployment has been largely due to people leaving the workforce, not due to employment growth, the report said. The implementation of House Bill 4 in July 2013 resulted in a capped maximum weekly benefit, reduction in available weeks and a change to how unemployment benefits are calculated. Far from helping the state’s economy–as proponents of the cuts have claimed–such unemployment cuts have left thousands of North Carolinians with less money to spend on basic necessities, in turn harming local businesses, the report said.

Read the report at this link.

“Some claim unemployment insurance itself is to blame for high unemployment. But in the past decade, before benefits were cut and jobs were more plentiful in North Carolina, fewer workers experienced long periods of unemployment,” said Alexandra Sirota, Director of the Budget & Tax Center, a project of the NC Justice Center, and co-author of the report. “Unemployment insurance keeps people looking for jobs, particularly during slow economic recoveries like the one we are experiencing.”

According to the report:

  • The average weekly benefit for unemployed workers plunged to $248.98 in December 2013, down from $301.89 in June, shortly before the new law started taking effect.
  • Only 11 percent of the decline in North Carolina’s unemployment is due to people finding jobs. The rest is largely due to individuals leaving the workforce altogether.
  • Fewer than two in 10 unemployed workers are receiving benefits, with the recipiency rate declining by 13.2 percent from November 2012 to November 2013.

North Carolina failed to adequately finance its unemployment insurance system before the 2001 and 2008-09 recessions, the report said. The unprecedented job loss of the Great Recession required the state to borrow from the federal government to make its required payments to workers who had lost their jobs through no fault of their own.

Proponents claim that benefit cuts were necessary to pay down this debt. However, policymakers opted for permanent reductions to benefits and chose to implement those benefit cuts earlier than tax changes. In the long-term, businesses will see significant reductions in their unemployment insurance taxes and jobless workers will receive fewer benefits, the report said. Unemployed North Carolinians are now shouldering two-thirds of the debt, while employers are contributing only 22.5 percent to the repayment.

Unemployment insurance was designed to serve as a buffer for the economy during economic downturns, the report said. It works by collecting contributions from employers in good times, so that when a downturn hits there is enough money to pay benefits to unemployed workers to sustain consumer spending on their goods and services.

“North Carolina’s new unemployment law is a dire threat to the effectiveness of unemployment insurance as an economic stabilizer,” said Sabine Schoenbach, policy analyst with the NC Justice Center’s Workers’ Rights Project and co-author of the report. “The ability of jobless workers to meet their most basic needs and spend in their local communities has been severely compromised, which will create a ripple effect through the economy.”

FOR MORE INFORMATION CONTACT: Alexandra Sirota, Alexandra@ncjustice.org, 919.861.1468919.861.1468; Sabine Schoenbach, sabine@ncjustice.org, 919.856.2234919.856.2234; Jeff Shaw, jeff@ncjustice.org, 503.551.3615503.551.3615 (cell).
 

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