Cuts to unemployment benefits yield negative results

Cuts to unemployment benefits yield negative results

Kevin Griffin

Persistently high unemployment has been an unfortunate fact of life for many over the past several years.

North Carolina appeared to have broken the cycle when the state unemployment rate dropped in 2013 from 8.8 percent in June to 6.9 in December, according to the North Carolina Department of Commerce.

One suggested cause for the drop in unemployment was the cut to unemployment benefits that the state implemented in July 2013. Maximum benefits went down from $535 to $350 per week, as well as the length of benefits from 26 to between 12 and 20 weeks, according to the Charlotte Observer.

There is so much wrong with this view of the situation, and the idea that cutting unemployment benefits is good for the state is simply false. Those supporting the cuts are misunderstanding critical points about unemployment benefits.

A report released this month from the North Carolina Budget and Tax Center reveals how detrimental the cuts have been. Since the cuts took effect, fewer North Carolinians are receiving unemployment benefits and average benefits went down from about $301 in June 2013 to about $246 in December, according to the report.

The report points out that this does not just harm the unemployed, but the economy as well. Unemployment benefits are intended to provide smooth economic transitions, so that people can contribute to the economy while being unemployed.

The report also states that much of the decrease in the unemployment rate is due to people dropping out of the labor force. About 111,000 people have dropped out of the labor force over the past year, according to the North Carolina Department of Commerce.

Reducing these benefits to the unemployed does make it more difficult for them to get by in an economy that remains stagnant.

Those who oppose unemployment benefits often say they will disincentivize workers from working, because the benefits might pay more than a low-paying job would. This argument has a superficial plausibility, and some evidence to support it, though there is much new evidence that shows little effect from the benefits on actual employment.

The effects of benefits on overall employment are minimal because the jobs the unemployed do not take are filled by newcomers to the labor market, according to a November 2011 Congressional Budget Office report.

Additionally, a study by the Political Economy Research Institute found little evidence that unemployment benefits caused work avoidance.

Unemployment benefits do help citizens and society, and reducing them can in fact cause harm. The best solution would be to have stronger policies and more sustained job creation.

But until effective job creation strategies are devised, we should see to it that the unemployed receive adequate benefits.

Kevin Griffin, a sophomore journalism major from Madison, is an opinion writer.