Friday, June 28, 2013

Economic Roundup®

North Carolina's total economic output, its state gross domestic product (GDP), was $456.0 billion last year, a $19.8 billion improvement over its output the year before.

I mention these figures to provide context for a big pile of money that North Carolina is about to send back to the U.S. Treasury.

In their fever to reward their big business benefactors, North Carolina's Republican legislature and governor earlier this year enacted draconian cuts in the state's unemployment insurance system. Among other things, the cuts reduce the maximum benefits that jobless people can receive from $500 per week to $350 per week, reduce the maximum weeks of state-funded benefits from six months to just under five months, and make jobless people wait an additional week before receiving benefits.

Since 2008, the federal government has paid Extended Unemployment Compensation (EUC) to jobless people who have exhausted their state-funded benefits. At one point, the federal government was covering up to a year and a half of extra benefits; currently it is covering just under a year of extra benefits in states, like North Carolina, with extremely high unemployment rates.

The federal benefits have always been intended to extend state-funded unemployment insurance benefits, not to replace them. Accordingly, the federal government conditions its payments on the state holding up its end of the bargain and continuing to fund its own program.

As North Carolina's legislature and governor fully knew when making their changes, the cuts in benefits and duration ran afoul of this federal provision. As a result, when the cuts are implemented, starting after this weekend, the federal government will end its EUC payments in the state.

As WRAL reports
Because North Carolina leaders cut average weekly benefits for new claims, about 170,000 workers whose state benefits expire this year will lose more than $700 million in EUC payments, the U.S. Labor Department said.
The loss of EUC funding will be devastating to the hardest hit North Carolinians--170,000 former workers who have already been without jobs for six months or more.

The loss of funding will also hurt the broader economy, which brings me back to those original GDP figures. At a time when the state's economy is only growing slowly, unevenly, and actually shedding jobs; the legislature and governor are about to pull $700 million directly out of the state's economy. That figure represents 3.5 percent of all of the economic growth that the state experienced last year.

In addition, jobless people spend the benefits that they receive. This puts money into the pockets of other North Carolinians, who in turn spend some of that money, putting money into the pockets of yet more North Carolinians, and so on. Mark Zandi has estimated that each dollar of EUC spending contributes a further $1.55 in economic growth (in fact, Zandi testified, "There was arguably no more effective form of government support during the recession."). If you add in the multiplier effect, the hit to the state's GDP from the loss of the EUC increases to 9 percent of 2012's total growth.

Instead of fertilizing economic growth, the legislature and governor have effectively doused the state's economy with the policy version of Roundup®.

Friday, June 21, 2013

More job losses in North Carolina

Remember how the last round of Republican-led cuts in personal, corporate, and sales tax in North Carolina in 2011 were supposed to lead to extraordinary job growth? Well, it's been nearly two years, and we're still waiting.

The U.S. Department of Labor released its latest estimates of state employment figures. For the third month in a row, North Carolina lost jobs on a seasonally adjusted basis. The Department of Labor estimates that the state lost about 400 jobs in March, 700 in April and another 5,900 jobs in May. Those losses occurred despite modest employment growth in the country as a whole.

The number of unemployed people is down in the state by about 30,000 over the last three months, lowering the unemployment rate from 9.4 percent to 8.8 percent. However, all of that decline (and then some) has come from a decrease in the number of people in the labor force. The number of people working or looking for work has shrunk by about 45,000 over the same period.

What should we expect if Republicans follow through with their current plans to cut taxes again for the wealthy corporations and people?

More of the same.

Friday, June 7, 2013

The unemployment rate ticked up, and that's okay

The U.S. Department of Labor released establishment and household employment estimates for May this morning, which indicated that the country gained 175,000 jobs on a seasonally adjusted basis but that the unemployment rate ticked up slightly from 7.5 to 7.6 percent.

The payroll jobs figure is modestly good news and is consistent with the slow and uneven growth in the economy. As in previous months, the loss of jobs from government austerity continues to be a drag on job growth. The sequestered federal government shed 14,000 jobs in May (on top of 31,000 jobs lost in the previous two months); state governments dropped another 2,000 employees. Job growth in the goods producing sector (manufacturing, construction, and mining) was flat. Over the last year, goods producers have only added 250,000 jobs, while service providers have added nearly 2 million.

There is also some good news in the higher unemployment rate. The number of unemployed people rose by 101,000 on a seasonally adjusted basis, which seems bad until you consider that the increase was due to a surge in the number of people who entered the labor force and were looking for work. The survey data indicate that 420,000 people joined the labor force in May.

Monday, June 3, 2013

Killer taxes on the poor

As North Carolina Republicans prepare to steam-roll their sweeping, regressive tax changes through the House and Senate, it's worth considering the terrible harm that could result.

In their 2011 book, Taxing the Poor: Doing Damage to the Truly Disadvantaged, Katherine Newman, a Professor and Dean at Johns Hopkins University, and Rourke O'Brien, a graduate student at Princeton University, found that increasing the regressivity of state and local taxes--as NC Republicans are proposing--led to to
  • higher mortality rates--"for every $100 increase in taxes on the poor, the mortality rates increased by 6.6 per 100,000" (p. 102),
  • increased violent and property crime rates--"the same dollar increase in taxes is associated with an increase in the state property crime rate of 78.3 per 100,000" and "an increase in the state violent crime rate of 12.3 per 100,000" (p. 103),
  • lower high school completion rates--"for every $100 increase in taxes on the poor...the state high school completion rate decreases by 0.26 percentage points" (p. 103), and
  • greater proportions of out-of-wedlock births--"a $100 increase in taxes on the poor is associated with a 0.07 percentage point increase in the percentage of births to unmarried mothers" (pp. 103-4).
Newman and O'Brien's estimated multivariate statistical models that accounted for the ethic make-up of states, poverty rates, GDP, unemployment, government expenditures and revenues, and inequality; thus, they controlled for indirect effects of the tax system on these other outcomes. For instance, states with regressive tax systems also tend to have lower expenditures and revenues; the effects that Newman and O'Brien found would be on top of any expenditure effects.

Also, the researchers considered changes within states in these outcomes and in tax regressivity over time; thus, their analyses accounted for unique permanent characteristics of the states, like the health or legal systems, that could give rise to spurious correlations.

Newman and O'Brien also looked specifically at grocery taxes (one of the taxes that would be raised under the Senate leadership's plan). Besides the harmful effects listed above, Newman and O'Brien found that higher food taxes led to increased rates of obesity, as poor people substituted from high-cost healthy foods to lower-cost unhealthy foods.

Rank-and-file Republicans who profess to respect life, be tough on crime, and promote family values would do well to consider the deaths, crimes, high school drop-outs, out-of-wedlock births, and worse health that their leaders' tax policies will deliver.