This is an update of some of my previous posts on the North Carolina employment trends since they prematurely terminated Emergency Unemployment Insurance. We finally have numbers through February, and there have been extensive revisions.
Here are some graphs:
The revisions have lowered the North Carolina Unemployment Rate from the summer of 2013 by more than 1/2 a percentage point. The net result is that, even with the revisions, NC still shows very strong declines in unemployment. But, the revisions remove most of the relative improvements in NC employment since last summer, suggesting that more of the net result of ending EUI has been a movement from unemployment to not-in-the-labor-force instead of to employment.
These large revisions show just how noisy this data is, so that there is always some question about the validity of the statistical evidence. Evan Soltas has more on that here.
I expected to see more of a transition from unemployment to employment, as opposed to leaving the labor force, and I would have hoped for that. In either case, if a similar trend ensues from the end of EUI at the national level, we should be left with an unemployment rate well under 6%. It would be one thing if, in a worse case scenario, a million workers left the labor force and the unemployment rate was at 9%. But, the tenor of this potential outcome is different when the resulting labor market is near levels we associate with full employment.
This is a place where the mistaken pessimism about labor force participation muddies the picture, because the response I see to this is that unemployment would be much higher than 6% if not for the flight of workers from the labor force. Once we account for secular trends, the labor force, while somewhat depressed, is within the historical range. Below, I have included a graph of LFP for the 3 male age groups with long-term linear trends. The 25-34 age group is the only age group that is significantly below the 60 year linear trend, and even that group is only 1.2% below the trend. On the whole, the LFPs compared to the trends are similar to where they were in 1994 and 1995, coming out of the 1991 recession. The unemployment rate in January 1994 was 6.6% and it was 5.5% in December 1994. EUI was terminated in the first few months of 1994, and had been much less generous than the recent version of EUI. One caveat is that the LFP's might decline more as we exit EUI, so we might see some more deviation from trend. I believe that EUI beneficiaries trend older, so I would expect the 25-34 group to continue to recover relative to trend, and for dips in LFP over the next few months to come in the 45-54 year old group.
The end of the program should be disinflationary, which should add to the challenge of where inflation will be over the next year, in the face of the end of QE. On the one hand, more monetary stimulus might help move former EUI recipients back into the labor force. On the other hand, to the extent that a number of the long-term unemployed might have marginal quantities of savings, and associated fixed incomes, unexpected inflation would reduce their real incomes. If this is the mechanism that pulls them more aggressively back into the labor force, it might be beneficial for national production, but not necessarily beneficial for the households in question.