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Reduction in unemployment benefits to take effect next month
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Reduction in unemployment benefits to take effect next month

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North Carolina’s unemployed residents are less than a month away from becoming participants in the General Assembly’s grand experiment for reviving the state’s economy in part through significantly cutting jobless benefits.

When Gov. Pat McCrory signed into law House Bill 4 in February, he provided the first measuring stick for whether his conservative approach to running the state economy will create jobs. State GOP legislators, along with four Senate and three House Democrats – none from the Triad and Northwest North Carolina – voted for the bill.

“This bipartisan solution will protect our small businesses from continued over-taxation, ensure our citizens’ unemployment safety net is secure and financially sound for future generations and help provide an economic climate that allows job creators to start hiring again,” McCrory said.

Starting June 30, residents relying on state unemployment insurance (UI) money to pay their bills as they seek work lose six benefit weeks as the law changes the maximum amount from 26 to 20.

Even though the law includes a sliding scale – the number of weeks goes down with every 0.5 percentage point decline in the jobless rate – the maximum number will not go below 20 the rest of this year, said Dale Folwell, the head of the N.C. Division of Employment Security. The sliding scale can be implemented every Jan. 1 and July 1. The state's jobless rate was 8.9 percent in April.

According to the division, 22 percent of post-June 30 claimants will receive a reduced weekly benefit amount, including 17 percent who now qualify for the maximum $530. The new maximum will be $350.

That same day, the state’s access to federal extended UI benefits -- an estimated $780 million for the second half of 2013 – goes away because legislators chose to alter North Carolina’s UI standards without federal government approval. The federal benefits have been offered in a four-tier system, with a maximum length of 47 weeks.

Those who started their state benefits before July 1 will receive the full amount they qualify for, said Josh Ellis, a N.C. Commerce Department spokesman.

However, once those benefits are exhausted, there will be no federal extended UI money to draw. 

The law also raises the unemployment insurance tax on most businesses until the debt is paid off, projected to be by the end of 2015.

However, the UI benefit reductions are permanently unless changed at a later date by the legislature.

Economists say it may take several months, if not into the early part of 2014, to determine whether the reduced jobless benefits and the promise of a quicker reduction of a $2.06 billion debt to the federal government will spur employers, particularly small businesses, to increase hiring.

The N.C. Commerce Department will try to ease unemployed residents’ financial dilemma by ramping up job-training and other employment services. Those are functions that many legislators, including bill co-sponsor Rep. Julia Howard, R-Davie, said should have been at the department’s forefront all along.

Folwell said he is confident his division is ready to handle the influx of claimants exhausting their benefits. He’s also confident that more employers will get off the hiring fence because they will have more certainty over their cost per employee.

“There is a direct correlation between lower employer UI tax and their hiring,” Folwell said. “More people will be working in North Carolina because of these important steps to help us better match people who want to work with employers who are hiring.”

However, one local claimant, William Pina, said he’s not convinced those efforts will make enough of a difference for those North Carolinians struggling to get hired, find a better job or a full-time job.

“What don’t the legislators who support the benefit cuts understand about people trying to survive the loss of a job in a bad economy? Pina asked. “ Do they just want us to not be able to keep our home, our possessions?”

Pina said his contract job on a Deere-Hitachi Construction Machinery Corp. project in Kernersville was phased out in January. He said he is struggling to find similar work, particularly HVAC in construction, because his experience level is working against him in terms of pay expectations compared with less-experienced applicants.

Pina was preparing to attend a local Economic Security division orientation session aimed at people whose federal benefits are exhausting. Because he is on the first federal tier, he will get just six of that tier’s 14 weeks after receiving 17 weeks of state benefits.

“It doesn’t matter what kind of training you get if employers just aren’t willing to hire no matter your qualifications,” Pina said.

Several economic studies have shown there are at least three job applicants for every job opening in North Carolina.

“I hope I’m wrong about this, but it’s going to get awful ugly after July 1,” Pina said.

'The best fix'

The debt to the federal Labor Department was created in part because employers received a series of unemployment insurance tax cuts in the 1990s when the state jobless rate was well under the 5 percent level that economists consider full employment. The jobless insurance tax rate was not raised, thus replenishing the state reserves for benefit payments, until 2011 despite the state going through two recessions.

Bill supporters said they were trying to bring the N.C. jobless benefits, which some considered too generous, in line with the maximum paid in eight Southeastern states. Howard said in February the law will “make North Carolina's business environment more competitive in attracting and retaining jobs.”

“It’s the best fix I can come up with for an ugly scenario we have to resolve,” Howard said. “There are no good answers. This (unemployment insurance) is becoming a welfare-dependent program in a lot of cases.”

N.C. Justice Center officials said in a January report that 54 percent of N.C. unemployment recipients are white, 51 percent are female and 45 percent are 46 years or older.

John Hood, the president of the John Locke Foundation, a conservative policy research group, said there is “no question North Carolina needs to bring its jobless benefits in line with other states, and with the realities of the job market.”

The Employment Security division began providing heads-up messages to UI beneficiaries about two weeks ago, including on its website and in the phone system that recipients use to file weekly job-search reports.

“We’re encouraging people, particularly those receiving the federal extended benefits, to take advantage of our employment services now,” said Bobbi Wessling, the manager of the division’s Winston-Salem office.

“Whether or not people are paying attention remains to be seen. For many people, the sense of urgency doesn’t typically come until their benefits actually run out.”

Making progress?

When Folwell, former state House Speaker Pro Tem, ran for the Republican nominee as lieutenant governor in 2012, he supported accelerating the payoff of the state’s debt, saying it was hampering the state’s ability to grow economically.

Folwell has said his job is to “implement the legislation that has now become law, to root out any waste, fraud and abuse in the system, and to make sure there is a high level of customer services, not only for the businesses of North Carolina but for the unemployed, also.”

He said last week the division already is making progress with efficiency steps that could accelerate the payoff by the state goal of the end of 2015. That, in turn, will help North Carolina lower its employer tax and be more competitive with neighboring states.

“We are focused on how we can do things not just quickly, but correctly,” Folwell said.

Folwell has said he is skeptical of the 170,000 figure that U.S. Labor officials have estimated in terms of how many North Carolinians will not receive federal extended UI benefits during the July 1-Dec. 31 time frame.

He said he believes it is closer to 70,000, which he acknowledges still is a large number of residents doing without a key source of income.

Advocates for the jobless aren’t so sure the division will be ready and able to respond June 30.

“I do not believe that the General Assembly gave adequate attention to all of the administrative and managerial problems associated with implementing changes of this magnitude in such a compressed period of time,” said John Quinterno, a principal with South by North Strategies, a research firm focused on economic and social policy.

“Little attention seemingly was paid to issues of implementation, information technology and customer service, in part because the whole tone of the debate reflected the idea that the individuals drawing unemployment insurance compensation were the problem, and were not citizens deserving of quality service.

“From my perspective, the chances of significant administrative disruptions and public confusion seem very high.”

Sliding scale impact

Part of the benefit-reduction measures is a sliding scale for the number of weeks individuals are eligible for state benefits. Currently, the range is between 13 and 26 weeks.

The new law allows for the number of weeks to decrease and increase depending on the state jobless rate. The weeks could be adjusted on Jan. 1 and July 1 each year.

For example, with the state jobless rate at 8.9 percent in April, the maximum number of weeks would have dropped automatically on June 30 from 26 to 19, and the minimum weeks from 13 to 12. But the legislators agreed to hold off on implementing the sliding scale until Jan. 1.

The minimum and maximum weeks drop to 9 and 16 when the jobless rate is between 7.1 percent and 7.5 percent, to 7 and 14 weeks when the rate is between 6.1 percent and 6.5 percent, and to 5 and 12 weeks when the rate is at or below 5.5 percent.

That means for North Carolinians whose job is eliminated in better economic times, they would have a safety net of just five weeks to find their next job.

According to an Upjohn Institute report cited by supporters of reducing jobless benefits, only 43 percent of UI claimants exhausted their maximum eligibility of 26 weeks between 2006 and 2011. The average claimant received 16.3 weeks of state benefits.

Based on those figures, House Bill 4 supporters said they were not cutting the number of weeks for most North Carolinians received state benefits.

However, using the state jobless rate as the measuring stick doesn’t reflect the overall harm the benefit reduction will cause in the state, said Bill Rowe, advocacy director for the N.C. Justice Center.

First of all, Rowe said, it’s not fair or appropriate to use the state rate as the standard for rural counties whose unemployment level could be several percentage points higher. For example, Ashe County’s jobless rate was 11 percent in April, and the rate for six other counties in the Triad and Northwest N.C. exceeded 8.9 percent.

Rowe also said the law, by using the standard unemployment rate, fails to take into consideration those North Carolinians who are underemployed, including working a part-time job when they want a full-time job, or who have dropped out of the job market.

The federal U6 index takes into account those people. The index is reportedly quarterly by the U.S. Bureau of Labor Statistics, with the rate for North Carolina at 16.2 percent on March 31.

Ellis said legislators are aware of the potential impact of the sliding scale on rural parts of the state. “We are working with legislators to get some clarity on the issue,” he said.

“I understand Commerce’s desire to prop up services for the unemployed as a buffer to help them once their benefits exhaust,” Rowe said.

“But in this instance, depending on where you live in North Carolina, you will feel a double whammy with the benefit cuts. The jobless rate is dropping, but mainly because more people are dropping out of the job market (thus not being counted as unemployed) than people are finding full-time work.

“It’s a flaw that should have addressed before it became law,” Rowe said.

rcraver@wsjournal.com

(336) 727-7376

This story has been updated as follows: This story was incorrect about when federal benefits end. Those benefits end June 30 no matter which of the four tiers the claimant is in and how many weeks the claimant may have left in the tier.

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