JOHN HOOD COLUMN: Unemployment news isn’t so rosy

Published 11:04 am Wednesday, May 26, 2021

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The latest estimates from the Bureau of Labor Statistics show about 251,000 North Carolinians unemployed as of April, down about 58,000 since the beginning of 2021.

John Hood

Alas, the news about our labor market isn’t as good as you might think. Of those 58,000 fewer unemployed North Carolinians, some 31,000 actually found jobs. The remaining 27,000 stopped looking. Our state’s labor-force participation rate has steadily dropped over the first four months of the year.

Here’s another way to think about the trends. North Carolina’s “headline” unemployment rate is 5 percent. If those 27,000 were still counted in the labor force, jobless but actively looking for work, our unemployment rate would be 5.5 percent.

The unemployment data I’ve cited so far come from a monthly survey of a bit over a thousand households in North Carolina, with comparable samples sizes in other states. Another, broader set of data come from surveys of establishments — businesses, nonprofits, and governments — and is a more-reliable way to count jobs. Its findings are no more comforting: total employment is up about 24,000 jobs so far this year. In other words, either a big chunk or most of North Carolina’s apparent decline in unemployment is due to people dropping out of the labor force, not to people finding jobs.

There is nothing deceptive or improper going on here. This is the way changes in the labor market has been measured for decades. Politicians, journalists, and policy analysts should always interpret such changes carefully. Given the widely reported fact that many employers are struggling to fill open positions, the statistics suggest we need to do more to restore the incentive to work.

Gov. Roy Cooper just issued an executive order requiring all current or prospective recipients of unemployment-insurance payments to comply with job-search requirements. If they don’t, they’ll lose their UI benefits. This is simply a full return to the pre-COVID rules, and a welcome one. But it won’t solve the problem on its own. Most UI recipients were already subject to the job-search rule, anyway, thanks to a previous order Cooper issued in March.

Republican lawmakers in Raleigh have come up with a stronger policy response. It takes the form of an incentive to accept a job rather than a disincentive to pass one up. According to the proposed bill, unemployed North Carolinians would get a signing bonus of $1,500 for accepting a job by June 1, and $800 if they did so sometime later in June. The money would be paid out of federal relief funds North Carolina is already slated to receive.

I’ve been in favor of changing the UI incentive structure for decades now. In the standard model, workers who become unemployed through no fault of their own can only receive weekly checks. There’s generally no way to get a lump-sum payment.

Why might lump sums be better? While UI was originally intended in part as a job-search subsidy — so that displaced workers wouldn’t have to take the first job that came along, and could spend time finding a better match for their goals and skills — in practice many workers maximize their UI payments by staying on the sidelines longer than necessary.

A job-placement bonus, especially as an alternative to some foolish expenditure of federal funds, is a reasonable response. In past work, I’ve recommended other approaches. For example, perhaps the state could allow the unemployed to pass on several weeks of UI checks in exchange for a one-time payment they can use to relocate to another city or state where job prospects are better. Or the state could allow them to withdraw a lump sum (again, smaller than the maximum benefits they would otherwise receive) to start a small business.

Naturally, we can also help North Carolinians thrive by encouraging investment in job creation as well as enhancing education and training. Those interventions will take time to work, however. In the immediate aftermath of the COVID crisis, I think a signing bonus makes a lot of sense.

John Hood is a John Locke Foundation board member and author of the new novel “Mountain Folk,” a historical fantasy set during the American Revolution.