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Posted: 6:00 a.m. Friday, March 1, 2013

Unemployment compensation to be reduced in yet another state

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Weekly jobless claims drop as people continue to search for employment photo
Weekly jobless claims drop as people continue to search for employment

By Clark Howard


North Carolina is the latest state to dramatically reduce unemployment compensation.

In case you're unfamiliar with how unemployment compensation works, employers are assessed an unemployment insurance charge every month as part of their payroll. That money goes into a fund and then pays a benefit when an employee loses a job.

Many states had been paying into it for years and years and then were overwhelmed with claims during the Great Recession. States have either had to increase assessments on employers and maintain benefits, or increase assessments and cut benefits, or just cut benefits.

As a result of North Carolina's decision, unemployment compensation will be reduced down to a maximum of 20 weeks from the former 26 weeks. And the maximum weekly benefit will drop to $350 from $535. All changes go into effect July 1, 2013.

North Carolina has some of highest unemployment rates in America. Residents were eligible for add-on federal benefits that extended the compensation for up to 78 weeks. But now they won't be eligible for the federal plan going forward because the state will no longer meet the minimum requirements for the plan.

For employers, this will all mean much lower insurance premiums over the years.

There's a deep philosophical divide in our country about social safety net programs like unemployment compensation. The truth is the social safety net is a drag on economic growth. At the same time, recessions are inevitable in a capitalist system.

We in the U.S. have steadily increased the number of safety net provisions. We have the most people ever on food stamps, unemployment compensation, and any of a number of other programs designed as social safety nets.

The question is do you get greater economic growth with greater hazard to people by lessening social safety nets, or do you take slower economic growth and know you're softening the blow for people who fall?

I can't say which is the right answer. But our country has a big effort underway to scale back on expenses for businesses with the resulting reduction in the social safety net.

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