In the wake of the Great Recession, North Carolina borrowed funds from the federal government to pay for the citizens’ unemployment insurance. Now, the state is cutting benefits to help pay back that debt.
At the beginning of February, a bill was introduced in the N.C. House to reduce unemployment insurance from a maximum of $535 to $350 a week. Gov. Pat McCrory signed the bill into law on Feb. 19.
The effects of the bill will manifest most poignantly in counties with high unemployment rates, including Alamance County. In November 2012, the county reported an 8.9 percent unemployment rate.
To earn unemployment benefits, a person has to have worked full-time for at least 26 weeks, the reason they lost their job cannot be their fault and they must be actively searching for work. Some unemployed people experience the “Discouraged Worker Effect,” where some people drop out of the workforce altogether because their benefits have run out.
“Now this group that’s not getting benefits anymore, they might just drop off and stop looking for work,” said Mark Kurt, assistant professor of economics at Elon University. “I’m kind of anticipating that we’re going to have some more discouraged workers in North Carolina as a result of this.”
Loaves & Fishes, a non-profit food pantry in Alamance County where many Elon students volunteer, works with unemployed people in the area to budget their current funds and work on getting their GED, in addition to providing groceries.
While the maximum unemployment payout in North Carolina was $535, the typical unemployed person who comes to Loves & Fishes received between $200-$300 a week, according to Brenda Allen, executive director of Loaves & Fishes.
Allen said most people she talks to use their unemployment insurance to keep their home and other belongings. Food is often a secondary consideration.
“Typically that will help to pay their rent, some of their utilities,” she said. “Certainly not their food, but their utilities and car payments and insurance. A lot of things have to go unpaid.”
In addition to cutting the size of payments, the bill trimmed duration of unemployment benefits from 26 weeks to between 12-20 weeks, depending on a person’s previous income.
“It’s losing more than just going from $500 a week to $350 for a family,” Kurt said. “Everyone who’s on unemployment is losing, potentially, some of the benefits, but also they’re losing the unemployment insurance because the duration has been cut shorter. I crunched the number and that could potentially affect 40 percent of unemployed people in North Carolina.”
For people in the Alamance-Burlington area, these cuts will make up a significant cut to the income they receive, and Allen said people who come to Loaves & Fishes talk about the coming cuts every day.
“They cry and they say ‘I don’t know what I’m going to do,’ ‘I’d be better off dead,’” Allen said. “There are no jobs here. For the people that we typically see here, they can’t afford to drive to Chapel Hill or Greensboro. They need a job that’s close by where they live.”
Because of the cuts to unemployment benefits, the $2.5 billion borrowed by the state for unemployment insurance is projected to be repaid by 2015. Without the cuts, the debt would likely be repaid by 2018. Each year the debt goes unpaid, unemployment taxes on employers increase by $21.
“The unemployment insurance liability that they’ll have to pay per employee wouldn’t be as high as it could have been,” Kurt said. “So that makes them more willing to hire somebody, especially if their liability is going to be higher because of lowered benefits.”
Part of the law McCrory signed also includes a raise in unemployment taxes, mainly by removing a law that said “positive balanced” companies paid no unemployment tax, to help pay back the debt. Between 1992 and 2000, North Carolina cut unemployment taxes multiple times to its current 1.2 percent rate.
“If you cut revenues, that’s going to lower the reserve account that they have available to pay out unemployment claims,” Kurt said. “Also, North Carolina has very high unemployment. Through the recession, we’ve faired worse than the average in the U.S. as a whole. We’re doing worse right now than Michigan.”
For the people Allen works with, these cuts represent a loss of income and a sudden need to find some other way to supplement their income until they find a job.
“There’s only a certain amount of time that you can rely on friends and family to help with utilities,” she said. “They have to have a job or have some income or get into some sort of federal or state funded program, or they end up on the street, or at a shelter or on the railroad tracks.”