J.P. Morgan Logo
20 Dec 2013
North America Economic Research

The Tar Heel test tube

 
 
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.
 
GPSWebNote ImageGPSWebNote Image


(1-212) 834-5523
JPMorgan Chase Bank NA
  


 

www.jpmorganmarkets.com


The research analyst(s) denoted by an "AC" in this report individually certifies, with respect to each security or issuer that the research analyst covers in this research, that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or e-mail research.disclosure.inquiries@jpmorgan.com.

Confidentiality and Security Notice: This transmission may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED. Although this transmission and any attachments are believed to be free of any virus or other defect that might affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by JPMorgan Chase & Co., its subsidiaries and affiliates, as applicable, for any loss or damage arising in any way from its use. If you received this transmission in error, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard copy format.