Pay for jobs, not long searches
All 50 states offer unemployment-insurance benefits to workers who lose their jobs through no fault of their own. Because states fund these benefits with payroll taxes, however, and must replenish exhausted UI trust funds with interest-bearing loans from the federal government, UI benefits vary according to how state legislatures weigh the resulting tradeoffs.
In Washington, Massachusetts, Minnesota, and New Jersey, for example, jobless claimants can receive more than $900 a week in UI benefits. In Florida, Alabama, Mississippi, and Louisiana, the maximum weekly benefit is less than $300.
Another key variation is how long workers can stay on unemployment. In Massachusetts, it’s 30 weeks. In Montana, it’s 28. California, New York, Pennsylvania, Illinois, Texas, and many other states set the maximum duration at 26 weeks. On the other end of the spectrum is our own state, which caps UI duration at 12 weeks under normal circumstances and up to 20 weeks during periods of high unemployment.
What are the relevant tradeoffs? One is between the generosity of benefits and the willingness to take a new job. Few dispute that access to unemployment insurance makes it less likely a laid-off worker will become immediately reemployed. One of the purposes of the system, in fact, is to give displaced employees time to find a new position that isn’t radically different from their previous one in salary, required skills, and prospects for advancement. But how long a job search should the system finance, and how “radical” a change should workers be willing (or incentivized) to accept?
Another set of tradeoffs reflect the fact that UI benefits are financed with payroll taxes that vary according to the employment history of sectors and firms. Setting payroll taxes too high will discourage job creation and pay raises (because employees bear at least some of the actual cost of “payroll” taxes). And the variance in experience-rated tax rates determines how much high-turnover sectors are subsidized by low-turnover ones.
When the North Carolina General Assembly enacted sweeping UI reforms in 2013, the immediate concern was a depleted trust fund. During the Great Recession, our state was one of many that ran through their accumulated funds and had to borrow. Legislative leaders and former Gov. Pat McCrory were determined not just to slash the debt but to restore the trust fund to a level sufficient to avoid a similar situation in the future.
The plan worked. As of 2025, North Carolina had more than $5 billion in its UI trust fund, well above those of peer states such as Texas, Florida, and Georgia. Still, our cap on benefit duration remains controversial.
I think a fair reading of the evidence is that longer durations create too much of a reemployment disincentive. A 2018 study published in the Journal of Political Economy found when lawmakers reduced UI duration in Missouri, unemployment spells shrank, too.
“Even in a period of high unemployment,” they wrote, “the labor market absorbed the influx of workers without crowding out other job seekers.”
And a 2025 paper in the American Economic Review summarized past research on the effects of UI generosity on labor-force participation and unemployment. Although earlier analyses may have exaggerated the magnitude of the effect, the authors confirmed that “UI benefit expansions increase unemployment duration.”
I recognize that empirical evidence about UI’s employment effects is mixed, however. A 2021 study in the American Economic Journal, for example, detected “no statistically significant impact of increasing UI generosity on aggregate employment.”
There is a promising alternative, one that may draw support from both sides of the debate. In 2020, Idaho created a bonus up to $1,500 to UI recipients after they accept new positions. A newly published study by Duncan Hobbs and Michael Strain of the American Enterprise Institute found that after the bonus was instituted, Idaho’s employment-to-population ratio rose 3.6 percentage points.
North Carolina ought to consider replicating Idaho’s approach. By changing when benefits are paid, it reduces work disincentives without inviting accusations of stinginess.
John Hood is a John Locke Foundation board member. His books Mountain Folk, Forest Folk, and Water Folk combine epic fantasy and American history.
“Pay for jobs, not long searches” was originally published on www.carolinajournal.com.
