This won’t be news to many ForexLive participants.
Congress looks unlikely to extend unemployment benefits next week. This means unemployment benefits will expire for millions of long-term U.S. job-seekers, 1.3 million immediately.
How will that affect the labor pool? Michael Feroli, chief U.S. economist at J.P. Morgan, used the North Carolina experience to find out.
Cutting out benefits can reduce the jobless rate in two ways,:
- People will take jobs even if the work pays less than the job seekers want
- And, in the participation effect, people will drop out of the measured workforce since actively seeking a job (a criterion for being labeled officially unemployed) no longer carries an advantage of receiving jobless benefits.
- North Carolina government decided to end extended benefits in July; since then, the North Caroline jobless rate has fallen 1.5 percentage points to 7.4% while the U.S. rate is down just 0.4 point to 7.0%.
- From July to November, the North Carolina labor force declined by 0.8%, while the U.S. force fell by only 0.3%
- employment in North Carolina has grown by 0.8% in the household survey measure and 0.7% in the establishment survey measure, vs. national employment 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 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,” writes Mr. Feroli.
Wall Street Journal article, not gated
