Official Analysis Post

I submitted the initial analysis post before class on 10/8, so after class I went back and modified my work for this re-release of the analysis post.

The unemployment insurance program in the United States is funded and executed through a federal-state joint operation.  This allows for a combination of federal and state payroll taxes to be pooled to assist different states, and it classifies the program as federal mandate, albeit partially unfunded.  Federal mandates are orders from the federal government that invoke a responsibility among the states, and maintaining unemployment insurance can fall under this category.  The program is constructed to distribute funds to those who have become unemployed by no fault of their own, but with this unique welfare program, funding is always on the line, and there are regulations that each state must abide by to continue receiving their funds.  Our state of North Carolina actively contradicted these strict guidelines in order to cut the budget for subsequent years, and in doing so they have lost funding for long-term unemployed throughout the state.  Unemployment is such a controversial issue that the benefits program is badgered by misinformation and bias, but the key to assessing the issue objectively is to minimize these outside influences, and to focus on a true analysis of the competing forces.  North Carolina is the only state in the nation to deliberately forfeit a significant portion of the unemployment insurance funding, and this is at a time when extremism in politics has run rampant.  Pat McCrory and the Republican Party of the General Assembly hope that cutting unemployment benefits will allow us to pay back our state debt quicker, but I will explain why the hopeful positives that the cuts pursue lack in stature compared to the devastating social and economic effects this will have on the majority of citizens in just the 38th wealthiest state.

The focus of this issue is the impact which these welfare cuts will have on North Carolina’s already poor economic state, and the continued suppression of the lower and middle classes.  Earlier this year, the North Carolina General Assembly dropped the maximum weekly payout of the states unemployment insurance program from $535 to $350.  This drop saw North Carolina go from the highest maximum rate in the southeast to below that of our neighbors.  This cut also put North Carolina in contempt of the federal regulations, and they were unable to win the appeal to maintain a maximum payout below what is required.  As a result of this cut, North Carolina lost federal funding for the long-term unemployed in the state, those out of work for over six months to a year, immediately knocking 72,000 North Carolinians off of a previously federally funded benefits program.  Also, unemployment insurance benefits have now been reduced to just three to five month lengths and pay less than ever before due to the initial cuts.  The issue of unemployment is not a new one to state legislatures, but the method in which ours has decided to act has caused problems to culminate at a time of financial crisis in the state.

The most cited reason for the action taken by our General Assembly this spring is that they have concluded that cutting these unemployment benefits is the most influential and consistent way to cut into the states debt.  The fiscal research office of the Assembly theorizes that, with these cuts, the state will be able to pay back its 2.1 billion dollars in federal debt by 2016, rather than 2019.  This poses an interesting insight into the issue.  We must determine if our financial security in relation to the federal government is worth the sacrifice of the financial security of our citizens and businesses.  Due to the federal cuts, businesses in North Carolina will now have to supplement the state government, paying $42 per employee annually into the unemployment assistance program.  This is twice the rate of $21 per employee that was active when the federal government was assisting with funding.  The idea that unemployment benefit cuts will help to combat our state debt is a valid one, but the General Assembly has not released their fiscal reports as of yet and there is not really any peer-reviewed research, post-cuts, presented on how this will affect the track to pay back the debt.  This leaves citizens at an interesting point, because while there is a valid belief that we can cut into our debt faster with these cuts, the damage it will do to our local economies is supported by multitudes of statistical evidence.  In North Carolina, 1 in every 5 citizens is living below the poverty line.  This is due in large part to our state having the 6th highest unemployment rate in the nation of 8.7%.  In a state where there is such economic turmoil, it is easy to see the benefits of the unemployment insurance program.  In just 2009, during the economic recession, nearly 3.4 million North Carolinians were pulled out of poverty by unemployment benefits.  Numbers stayed strong through 2011, but due to continued legislation slashing benefits, in 2012 the number dwindled to just 1.7 million North Carolinians being brought out of poverty thanks to these benefits.  Even as legislation and public opinion turned against the unemployed, the positive effects of the federal-state joint unemployment insurance program are exceptional and statistically reinforced.  This presents the case that maybe we should not be cutting such a once influential and positive aspect of our societal safety net, and that there are more viable options to eliminate in order to pay back the debt faster.  It is difficult to present a case as to why we would deliberately shorten the unemployment benefits span to 3-5 months, cut the maximum payout rate, and kick an estimated 170,000 citizens off of a program that has shown such exceptional results.  All of this, at a time when 20% of North Carolinians are facing poverty and nearly 10% are facing unemployment.  Another defining factor in this debate is the effect that this lack of funds will have on local economies because citizens will not have money to spend.  It is estimated that with 170,000 citizens losing their benefits, that $600 million in federal aid will not be spent in the state, leading to a revenue loss of $1.2 billion throughout the economy in North Carolina.  These are harrowing numbers, and while I agree the debt is important to cut, it has dropped from $2.4 billion to $2.1 billion in the first two quarters of this year, so I do not believe we need such drastic reductions in welfare for this purpose, especially at the expense of our businesses and generous federal funding.

Unemployment insurance has such clear results that it should be recognized as a beneficial source of welfare by the state, but the General Assembly has opted to make an effort to slash the budget by cutting this social safety net.  The General Assembly must publish their fiscal research if they are to push their agenda, and they have a very valid case that our state debt is weighing us down, but the people must be well educated enough to decide if this is the best method by which to reduce the debt.  Statistics demonstrate that there are multitudes of positives as a result of these benefits, leading you to question the true reasoning and motive for the decision made by this session of the Assembly.  I believe this is such a significant issue that the public must become more knowledgeable about it, and hopefully a post that does not invoke societal prejudices and assumptions about the unemployed is adequate enough to get the focus of the audience.  I authored this post in a fashion that I hope will inform and educate readers about the true events affecting unemployment insurance in North Carolina.

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s