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Blacks in south and midwest hurt most by jobless cuts

People wait in line for the Cleveland Career Fair in Independence, Ohio. U.S. employers accelerated their hiring in June, adding a robust 288,000 jobs and helping drive the unemployment rate to 6.1 percent, the lowest since September 2008, the Labor Department reported Thursday. AP PHOTO/Tony Dejak

People wait in line for the Cleveland Career Fair in Independence, Ohio. U.S. employers accelerated their hiring in June, adding a robust 288,000 jobs and helping drive the unemployment rate to 6.1 percent, the lowest since September 2008, the Labor Department reported Thursday. AP PHOTO/Tony Dejak

By Freddie Allen

NNPA

WASHINGTON  – When cash-strapped states in the south and midwest slashed unemployment benefits after the Great Recession, claiming it was an effort to save money and boost the economy, they only succeeded in disproportionately hurting Black families already struggling to make ends meet.

In a recent analysis of the impact of state cuts to jobless benefits, the Economic Policy Institute reported that Arkansas, Florida, Georgia, Illinois, Michigan, Missouri, North Carolina and South Carolina decreased the total number of weeks that the unemployed could receive benefits to below 26 weeks, even though no other state had dipped below that mark in more than decade.

When Congress approved the Emergency Unemployment Compensation program in 2008, the overall employment rate was 5.6 percent and the long-term unemployment rate was 1percent. But when Congress let the program expire in 2013, the jobless rate and the long-term unemployment rate were much higher; 6.7 percent and 2.5 percent, respectively. The unemployment rate for Blacks was nearly 12 percent (11.9 percent) in December 2013, nearly twice the national average.

The eight states, primarily in the south and midwest, moved ahead of Congress and cut the number of weeks that people could receive unemployment benefits citing the need to “shore up insolvent state accounts in the federal Unemployment Trust Fund (UTF),” according to the report.

Not only were UTFs in 27 other states also insolvent, the states that made the cuts experienced little to no benefits in their economy or labor force rates. “The fact that you don’t see any significant effects of the cuts, positive or negative, was surprising to me,” said Valerie Wilson, an economist and director of the Economic Policy Institute’s Program on Race, Ethnicity, and the Economy (PREE) at the Economic Policy Institute.

Wilson said states that made the cuts didn’t gain any labor market improvement, aside from what was already happening, and on the budget side, they didn’t save a lot of money either. “The justification for doing it was really weak,” said Wilson. “It makes a point that those decisions were made not necessarily for economic reasons, as much as they were politically driven.”

According to Wilson, the loss of income from the jobless benefits was disproportionately borne by African American workers, because in those states where those benefit cuts were made, African Americans are a larger share of the workforce than their overall population.

In Georgia, Blacks accounted for roughly 31 percent of the labor force and 58.3 percent of the long-term unemployed, compared to whites who accounted for about 56 percent of the workforce and 35 percent of the long-term unemployed. Even Missouri, where Blacks were only 10 percent of the labor force, they were 18.3 percent of the long-term unemployed, compared to Whites who made up more than 83 percent of the labor force and about 73 percent of the long-term unemployed.

In a July 2013 report, the Urban Institute said that Blacks represented 10.5 percent of workers that held jobs and 22.6 percent of the long-term unemployed, nationwide. Some state lawmakers have argued that extending unemployment insurance (UI) creates a class of citizens who would rather depend on the government than search for gainful employment.

The EPI report offered empirical evidence that proved otherwise, including 2011 research by Jesse Rothstein at the Goldman School of Public Policy and Department of Economics University of California that showed that “most of the effect of UI extensions on unemployment stems not from any barrier to job-finding introduced by these extensions, but from the inducement to workers to remain in active job-search, which means that they will be classified as unemployed rather than out of the labor force. UI extensions that keep workers engaged in active job-search not only do not harm job-finding rates, they may actually increase them by boosting workers’ job search intensity.”

In 2013, Henry Farber of Princeton University and Robert Valletta of the Federal Reserve Bank of San Francisco “did not find a substantial effect of extended benefits on time to exit to employment” and “that there may be individuals who remain attached to the labor force, perhaps searching at a low level, because extended benefits are available.”

William Spriggs, chief economist for the AFL-CIO, scoffed at the idea that cutting UI benefits, somehow creates jobs. “That would be like saying, if I don’t make you a millionaire, then you’ll become a millionaire, because then you’ll start looking to become a millionaire,” said Spriggs. “Well, all I can do is look.”

The EPI report found “little evidence that extending unemployment aid provides a disincentive to work that is large enough to materially change the trajectory” of key economic indicators. EPI researchers explained a weak demand for workers most likely responsible for the stubbornly low rate of workforce participation in those states.

The report noted that other more effective means existed to shore up resources for state Unemployment Trust Fund (UTF) accounts. “Compared with a tax hike that would have achieved the same boost to the state UTF account’s balance, the savings per covered worker in the six of these eight states for which data are available ranged from $0.06 to $0.69 per week,” stated the report. “In short, unemployed workers lost an average $252 per week of curtailed benefits just so states could save roughly 37 cents per covered worker per week in (State Unemployment Tax Acts) taxes, holding trust fund account balances equal.”

The report also recommended that states build their trust fund reserves when the economy is good and expand their tax bases. “The fact that African Americans already have high rates of unemployment, already have high rates of long-term unemployment, makes it especially egregious that a cluster of southern states and a few Midwestern states decided to cut their benefits,” said Wilson. Wilson said that, long-term unemployment is still very elevated and the level of long-term unemployment didn’t justify cutting the benefits between 2011-2013.

Wilson explained: “It’s just poor timing given that there is still a significant portion of the population who have been out of work for a long time and could really use those benefits to help their families.” 

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