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Home Publications Blogs Beat the Press Norwegian Researcher Shows Election of Republican Governor in North Carolina Sends Employment Plummeting

Norwegian Researcher Shows Election of Republican Governor in North Carolina Sends Employment Plummeting

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Friday, 24 January 2014 17:26

Brad Plummer calls our attention to a study by an economist at the University of Oslo showing that employment in North Carolina plummeted immediately following the election of Republican Governor Pat McCrory. According to the study, whose lead author is University of Oslo Professor Marcus Hagedorn, employment fell by 295,000 or 7.0 percent in the three months from November, 2012 to February, 2013. This plunge in employment was associated with a 5.3 percentage point drop in the employment to population ratio and a 6.3 percentage point decline in the labor force participation rate.

This falloff in employment is far sharper than even the worst period following the collapse of Lehman in 2008. In the worst three month period following the collapse the employment population ratio fell by just 1.1 percentage point, just over one-fifth of the drop seen following the election of Governor McCrory.

The plunge in North Carolina's employment is especially striking since it came at time when the national economy was adding jobs at a respectable rate keeping the employment to population ratio nearly constant. Clearly businesses in North Carolina responded negatively to their new governor.

Actually, these data are directly taken from the Hagedorn paper (Table 1), but this is not a point that he makes in the paper. Instead, the paper claims that there was a sharp uptick in employment in the period since severe cuts in unemployment insurance benefit duration and eligibility were put in place in July of last year. While the data, which the authors have constructed from their analysis of the Current Population Survey, does show a sharp turnaround (which actually begins in February), it also shows this striking falloff in employment following the election.

job loss-sc 17306 image002

                                        Source: Bureau of Labor Statistics and Hagedorn, 2014.

 

In reality, this sharp falloff in employment almost certainly did not happen. This is horrific depression type stuff. Unless North Carolina was hit by some devastating epidemic, war, or climate disaster (the data are seasonally adjusted), employment could not have fallen as indicated in the data shown in the paper. Conversely, this also means that employment almost certainly did not rise as shown in the data. In other words, the data series in the paper is being moved by errors in measurement, not anything real in the economy.

The paper's author obviously wants to argue that cutting unemployment benefits is a good thing for job creation and economic growth. His data are far too flimsy to make the case, which more reliable data clearly do not support. But if we want to treat the Hagedorn data as being authoritative then we can say that McCrory's election was the worst thing to hit North Carolina since General Sherman's army.

 

Note: Chart added and label corrected.

Comments (8)Add Comment
...
written by Dryly 42, January 24, 2014 7:26
General Sherman did create the basis for employment. He created the need for rebuilding after he left for North Carolina. He did the same in Georgia.

It would be good if we had good studies for these extreme right wing governments among the states. I have seen studies which compare economic growth in Wisconsin and Minnesota. Growth in the right wing state of Scott Walker is substantially less than in Democratic Minnesota.
Let's reinvigorate the wealthy
written by John Parks, January 24, 2014 9:12
As I understand the party line, the safety net becomes a hammock and those receiving any benefits from the government will lose any incentive to grow and be productive.

If this is true, we should probably remove the tax breaks, cancel any protective copyright and patent protections for the rentiers, and spur the corporations and the wealthy into becoming more productive without government safety nets.

Sounds like a solution to me!
...
written by Kat, January 25, 2014 8:07
Here's how withdrawal of unemployment insurance works:

http://www.gocomics.com/matt-b...uO2PvtOm9I
Sc. Nc
written by Rraccoon, January 25, 2014 8:28
The chart says south Carolina not north
...
written by skeptonomist, January 25, 2014 11:40
According to standard conservative or classical economics, a recession is supposed to be countered by reducing wages. This gives a larger profit margin to producers, who then are supposed to turn around and expand and hire more, presumably because of their faith in Say's law. Unemployment benefits are supposed to be a barrier to wage reduction. When benefits are cut off, this is supposed to make people more willing to find jobs, but in the current environment they can only get jobs by offering to work for less than other people. Some economists seem to be oddly unaware of this standard rationale for cutting benefits. But anyway the initial effect of cutting benefits should be to reduce wages - at first the unemployed are only displacing others by working for less.

I don't know whether the wage data for NC are good enough to test this, but if national benefits are cut off, and if this works the way conservatives say it does, there should be a reduction in average wages before any increase in employment.
...
written by tom, January 25, 2014 12:11
you are talking NC, but your chart is labeled as SC.
peanut
written by Keith, January 25, 2014 3:40
Probably the legislature, not McCrory.
skepto..wages are sticky downward...
written by pete, January 27, 2014 6:15
So we get the Yellen (the new money czarina) model of inflating down real wages. In both the classical or Keynesian model, anything that encourages work is good. Paying someone not to work for 2 years has to be a horrible idea in anyones universe. Why not give them the wage adjustment, the on the fly earned income tax credit? As Rattner points out in the Times, wages are so high that firms require huge tax breaks etc. to start up.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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