John Hood: Too many workers are sidelined

RALEIGH — The latest federal job report is out — and it shows North Carolina’s employment recovery stalling out a bit during the first quarter of 2021.

That may not be evident at first glance. The state’s headline unemployment rate fell during the first three months of the year, reaching 5.2% in March. That’s way down from the terrifying 13.5% rate of a year ago, as COVID-19 and the ensuing shutdowns swept North Carolinians out of their jobs at an unprecedented speed.

That headline unemployment rate of 5.2% is, however, still higher than the 3.6% unemployment rate North Carolina posted in February 2020, just before the pandemic hit. More importantly, some workers without jobs aren’t counted in the “headline” rate, the technical name of which is the U-3 rate. These are folks who are too discouraged to look for a job, are otherwise detached from the job market for some reason, or who work part-time but would rather have a full-time job.

A different measure, the U-6 rate, counts all those people, too. I can’t give you the U-6 rate for the first quarter of 2021, because that particular measure lags a bit behind the others. But as of the end of 2020, some 12.4% of working-age North Carolinians were either jobless or involuntary part-timers.

There are good reasons to believe this share hasn’t fallen very much in recent months. For example, North Carolina’s labor-force participation rate — the share of the working-age population that is either employed or actively looking for jobs — fell from 60% in December to 59.5% in March.

That’s not a sign of health in our labor market. We don’t just want the U-3 rate to drop and job counts to go up a bit. To get back to something approaching normal, we need to see North Carolina’s labor-force participation rate rise back up towards the pre-COVID rate of 61.3%.

Why are so many potential workers still on the sidelines? There are several possible (and not at all contradictory) explanations.

Many economists and Republican politicians blame the expansion in unemployment-insurance benefits. During the early stage of the pandemic, Congress and the former Trump administration both expanded eligibility for UI benefits and tacked on additional money to those benefits.

Back then, when businesses were ordered to shut down or cut back hours, or simply couldn’t attract many risk-averse customers, the effects of expanded UI on work incentives may have been modest. Indeed, that was the stated purpose of the extra $600 a week — giving households money to pay their bills because so many workers had little prospect of getting any kind of full-time job.

Now that our state and many others have relaxed restrictions on businesses, and newly vaccinated customers are venturing out to consume goods and services, the wide availability of UI benefits, still supplemented by an extra $300 a week, is surely keeping some lower-skilled workers on the sidelines. They truly receive more weekly income from government than they would from an employer.

But I doubt that’s the only factor at play here. While state restrictions on our economy have been relaxed, they remain tight in some sectors. Capacity constraints are keeping arts, entertainment, leisure, and hospitality businesses from staffing up fully. Those jobs won’t come back until state restrictions are gone and until more people feel safe enough to go out.

Although the perverse incentives facing sidelined workers are largely of Washington’s making, North Carolina leaders can help our labor market heal more quickly. They can keep promoting and facilitating vaccination. And Gov. Roy Cooper should lift most of the restrictions still in place on our businesses, pointing to the rising share of North Carolinians who are immune either from vaccination or from prior exposure to COVID.

Paying people to stay home from work may make sense as a temporary expedient in the midst of an outbreak of communicable disease. But it’s not the right policy now. Subsidizing idleness is bad for individuals, bad for families, and bad for our economy.