The facts behind North Carolina’s drop in unemployment

From John Hood, president of the John Locke Foundation in Raleigh:

Last July, North Carolina became the first state to exit the federal government’s extended-benefits program for unemployment insurance. Six months later, at the start of 2014, extended benefits ceased in the rest of the country. President Obama and some politicians and analysts want to renew the program for at least some of 2014. Others think extended benefits are no longer a wise use of taxpayer money.

Given the stakes, policy analysts have focused on the labor-market statistics in North Carolina, which show a dramatic drop in the unemployment rate (from 8.8 percent in June to 6.9 percent in December, more than twice the drop the nation as a whole experienced). I wish these analysts’ intense focus had been accompanied by an extensive knowledge of how the statistics were produced and what they meant.

For example, if they knew their facts, these analysts would not claim North Carolina’s exit from extended benefits caused the state’s civilian labor force to contract. They would know that the apparent decline in North Carolina’s labor force began in February 2013, months before the end of extended benefits.

They would also know that the labor force count also began to decline markedly in other Southeastern states around the same time, even though these states retained their extended UI benefits.

The decline in the labor force from June 2013 to December 2013 was not large enough to be statistically significant. According to the Bureau of Labor Statistics, because of the small size of the household-survey sample in North Carolina, “the approximate thresholds for statistically significant changes … over a 6-month period (using the change from June-December 2013) are as follows: 68,000 for civilian labor force; 61,000 for employment; 32,000 for unemployment; and 0.7 for unemployment rate. So, our official estimates indicate that unemployment (both in terms of the level and rate) in North Carolina has gone down significantly since June, but neither the labor force nor employment level changes were significant.”

The other BLS survey that generates labor-market statistics, the payroll survey, has a much larger sample size. Thus its margin of sampling error is lower. According to the payroll survey, North Carolina employers added 51,400 jobs from June to December, a statistically significant increase. Moreover, that rate of increase (1.3 percent over six months) exceeded the national average for the same period (0.8 percent).

There was one recent period during which North Carolina lagged the nation. That was the first six months of 2013, when we added only 13,100 new jobs, a growth rate of just 0.3 percent. It was an outlier. North Carolina’s job creation surpassed the national average during 2012 and during the last six months of 2013. Unfortunately for the Left’s flimsy narrative, Jan-June was the “wrong” period for the state to underperform, since it preceded the end of extended benefits.

To sum up, then, here’s what the evidence tell us about North Carolina’s July 2013 exit from extended benefits: 1) it was followed by a large, statistically significant drop in both the count and rate of unemployment; 2) it was followed by a statistically significant increase in filled jobs as measured by the payroll survey.

Other claims, such as about labor force participation, lack statistical significance.