Paul Krugman has a new post on North Carolina’s “experiment” with cutting unemployment benefits and, unsurprisingly, he finds that it’s an abject disaster: “there is no sign at all that North Carolina’s harshness has done anything except make the lives of the unemployed even more miserable.”
Krugman does deserve a little credit for noting (unlike some other people) that NC’s labor force has tracked national trends and started dropping months before the unemployment benefits were trimmed, and for admitting that it’s therefore impossible to know whether that change has caused the continuing (but slower) LFP decline. However, in characteristic fashion, he still only gives us part of the story (and, of course, it’s the part that’s most sympathetic to his case).
First, his use of year-on-year employment data obfuscates the fact that – as I showed in my Federalist piece – NC’s total employment (as measured in both the population survey and establishment survey) actually declined during the first part of 2013 and only started trending upward around summertime – coincidentally (perhaps) around the time that jobless benefits were trimmed. This is why less-biased analysts have tried to assess the “NC experiment” by looking only at the labor market since June, and have – to varying degrees – found employment effects: total jobs increased significantly; increased employment as a share of the state’s population was better than that for the nation; and, perhaps most interestingly, North Carolina out-performed neighboring states like South Carolina and Virginia – states that haven’t cut jobless benefits – over the same period. Thus, there are in fact plenty of “signs” that North Carolina’s benefit cuts resulted in more of my fellow Tarheels finding and taking jobs. It’s not a perfectly clear situation (e.g., employment in the establishment survey actually ticked down a bit in November, but it shot up in that month’s population survey), and I’d like to see a few more months of data. But, as even Krugman admits, the labor force situation isn’t totally clear either.
Second, Krugman incorrectly assumes that any and all participation effects – i.e., people ceasing to describe themselves as actively seeking a job because their benefits ended – are a most definitely a bad thing: i.e., that everyone who “dropped out” of the labor force was earnestly looking for work in order to maintain his/her benefits, and that their exit is very, very bad for them, the state’s economy and its welfare rolls. But that’s simply not true. Some people undoubtedly fit Krugman’s characterization, but a lot of others undoubtedly don’t: maybe they weren’t earnestly looking for work at all and were simply going through the motions to get their government check (aka the “Costanza effect” ); maybe they were postponing retirement or school until their benefits ran out and have now moved on to that next stage of their lives; maybe they moved to another state with better job prospects (or better jobless benefits). As this recent Marketwatch piece admits, “we just don’t know.” Thus, it’s completely misleading for Krugman and his ideological allies to claim that they do.
The views expressed herein are Scott Lincicome’s alone and do not necessarily represent the views of his employer, White & Case, LLP.