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®.