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20 Dec 2013 |
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North America Economic Research |
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The Tar Heel test tube
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In a note
from a few weeks back we discussed
how the potential expiration of federal extended unemployment
benefits (formally called Emergency Unemployment Compensation) at
the end of this month could push the measured unemployment rate
lower. The state of North Carolina offers a potential testing
ground for this thesis. In July, the North Carolina government
decided to no longer offer extended benefits, even though the state
still met the economic conditions to qualify for this federal
program. Since July, the North Carolina unemployment rate has
fallen 1.5%-points; in the same period the national unemployment
rate has fallen 0.4%-point.
In our note we discussed two channels identified
in the economics literature through which reduced benefits could
affect the unemployment rate: an employment effect -- more people
lowering their reservation wage -- and a participation effect --
people no longer need to be formally considered jobseekers to
receive benefits and thus drop out of the measured workforce. Our
note indicated that the limited evidence suggests the participation
rate effect might be more important. The North Carolina evidence is
broadly consistent with this. Since July the labor force has
declined by 0.8% in North Carolina, but fallen by only 0.3%
nationally, and the participation rate is down 0.7%-point in North
Carolina vs.. 0.4%-point nationally. Over the same time period,
employment in North Carolina has grown by 0.8% in the household
survey measure and 0.7% in the establishment survey measure;
nationally employment is up 0.1% in the household measure and 0.6%
in the establishment measure. Thus, in this case it would appear
both channels are operative but the participation effect may be
more important.
The information from one data point is a long way
from statistical certainty, but the limited evidence from North
Carolina suggests that the potential expiration of extended
benefits will place further downward pressure on the measured
unemployment rate. In which case the Fed could soon have some
'splainin' to do about what "well past" 6.5% means with respect to
their unemployment rate threshold.
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(1-212)
834-5523
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