Will unemployment decline lead McCrory to the White House?

by Rob Christensen, News and Observer, July 19, 2014.

“Do you propose, at some point, to run for the presidency?” North Carolina Gov. Pat McCrory was asked on national TV the other day.

The question was posed by Stuart Varney of Fox Business News, in the context of North Carolina’s declining unemployment rate, which he admiringly suggested might provide McCrory with a launching pad to the White House.

McCrory, of course, demurred, saying he was focused on Raleigh.

Before we get too far down the road of the McCrory presidential boomlet, we should perhaps take a closer look at the claims.

Varney noted that North Carolina’s unemployment rate, which was 8.8 percent when McCrory took office in January 2013, had dropped to 6.4 percent in May. The rate remained the same when June data was released on Friday.

McCrory touts the sweeping reforms in North Carolina’s unemployment laws that went into effect last July as a major reason why the state’s unemployment rate is declining.

The cuts lowered the maximum benefit checks from $535 a week to $350 a week, while the maximum length of benefits was cut from 26 weeks to a sliding scale that is now 14 weeks – the lowest in the nation. To put that in historical perspective, Gov. Kerr Scott signed a bill lengthening unemployment insurance from 20 weeks to 26 weeks in 1951. So we are essentially back to an era when men wore caps and denim bibs to work as far as the laws trying to provide some cushion for the average working person who loses a job through no fault of his or her own.

Labor force declining

The number of North Carolina workers who receive unemployment benefits has dropped from 90,858 in May 2013 to 42,382 this May. Now this means one of two things: Either there are thousands of people suffering, or there are thousands of people who have found employment.

McCrory thinks it’s the latter.

“People are taking jobs that are being offered, whereas in the past, employers were telling us people were not taking, especially, entry-level jobs because they were waiting for the unemployment to be extended,” McCrory told Varney.

I asked Patrick Conway, the Princeton-educated economist who is chairman of the economics department at UNC-Chapel Hill, about what the numbers show.

Conway said the evidence suggests that the sharp drop in the unemployment rate is being driven, in part, by people no longer looking for work, and therefore no longer counted as among the unemployed. Only those who apply for unemployment insurance are counted in the unemployment rate, Conway said.

North Carolina’s unemployment rate has dropped since the law was changed, but there has been no sharp increase in people in the labor force. In fact, Conway produced a graphic, showing a rapid decline in the size of the North Carolina labor force relative to the U.S. labor force.

“The (North Carolina) labor force has been falling throughout that period,” he said. “The only explanation that makes sense is that people who were unemployed stopped looking for work. When that happens, what we call the unemployment rate is picking up that fact and registering that as a fall in unemployment.”

No better than neighbors

North Carolina was particularly hard hit by the recession, as were other Southeastern states. During that time, North Carolina saw its unemployment rate rise from 4.6 percent in February 1996 to 11.1 percent in April 2010.

It had declined from 11.1 percent to 8.8 percent by the time McCrory took office as governor in January 2013. By the time the changes in the unemployment insurance laws had taken effect in July 2013, the unemployment rate had fallen to 8.1 percent.

Even if the drop in the unemployment rate was real – that is people who were formerly unemployed are now holding down jobs – North Carolina’s experience is hardly extraordinary. It fits into what has been going on in the region.

I looked at what was happening during the same period in three states, in part because the U.S. Bureau of Labor Statistics has an interactive chart comparing North Carolina, South Carolina and Georgia over time.

If the unemployment law changes were spurring people to go back to work, you would expect a major difference between North Carolina and its neighbors. But that wasn’t so.

As North Carolina’s unemployment rate dropped from last July’s 8.1 percent to June’s 6.4 percent, South Carolina’s rate dropped from 7.7 percent to 5.3 percent. Georgia’s declined from 8.3 percent to 7.4 percent.

So North Carolina’s unemployment picture has been pretty much performing like that of its neighbors, rising and falling as the recession came and went.

So before we move from Mayor Pat to Governor Pat to President Pat, we need to make sure the unemployment improvements are both real and something special – and not just another case of the crowing rooster claiming he made the sun rise.