When it comes to unemployment, don't trust the numbers

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In 2013, North Carolina passed a law reducing the number of weeks an individual can receive unemployment benefits from 73 to 20. As a result, the real number of the state's employed is far more than polls and politicians are willing to let on. According to ECU finance economist James Kleckley, the state estimates the number of unemployed based on the number of people enrolled in unemployment benefits. This estimate, however, does not include the luckless who are unable to find either full time or any work within the 20 week limit. These 'shadow unemployed' are unable to make ends meet, and receive no aid from the government - and are not represented in the number of unemployed accounted for by the state.

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When the General Assembly reduced the number of weeks those eligible for unemployment benefits could collect that insurance to 20 from 73, "the unemployment rate became arbitrarily low," Kleckley said.

"Those people who had been eligible for 73 weeks of unemployment insurance should still be counted as though they're unemployed," he said. "But they're not."

Kleckley developed the "shadow rate" because the Bureau of Labor Statistics survey didn't account for the change in North Carolina's law, he said.

Here's the problem, Kleckley said: The state relies on a flawed model that estimates unemployment.

The U.S. Bureau of Labor Statistics uses a survey that counts the number of unemployed, he said. Then, federal officials determine an estimate of the unemployed in each state based on that number.

North Carolina government officials use a model that doesn't count anybody, Kleckley said. The model, which pre-dates Gov. Pat McCrory, just estimates.

He and state officials disagree over whether North Carolina does enough to adequately calculate unemployment.

Official unemployment rates in North Carolina could falsely appear to be healthier compared to other states and the country as a whole due to the 2013 policy shift, Kleckley said.

North Carolina officials say the state's 2013 changes in benefits aren't a factor in measuring unemployment

"The 2013 law did not change the federal definition of unemployment," said Josh Ellis, spokesman for the governor. "It's been measured the same way for decades and (Kleckley) hasn't provided any evidence to suggest otherwise."

But Kleckley said that "North Carolina's unemployment-insurance rolls dropped considerably faster than other states as a result of the policy change."

He added that the Bureau of Labor Statistics model has used for decades didn't account for the dramatic change in the unemployment-insurance roll headcount.

"The model believed these people simply disappeared from the labor force," he said.

To illustrate his point, Kleckley said the state's unemployment rate was nearly one percentage point higher than the nation at the beginning of 2013, but by the end of the year the rates were equal.

At the same time, he said established job growth grew at virtually the same levels: about 1.8 percent.

Ellis said the governor deserves credit in lowering unemployment.

"North Carolina had the fifth-highest unemployment rate in the country, along with the most broken unemployment system in the nation," he said. "The governor pursued common-sense solutions that helped fix the state's unemployment system, pay off our debt to the federal government and help people get a job."

Kleckley said North Carolina officials paid off some federal debt by using the savings accrued from cutting the unemployment-benefit period to 20 weeks from 73.

"Since the unemployment benefit recipients are used to help estimate the official unemployment rate for North Carolina, and all other states, the restructuring of the benefits skewed the published rate quickly downward," he said.

The shadow rate Kleckley has tracked to 1990 shows that unemployment rate drop would not have occurred, he said.

Kleckley also calculated the seasonally adjusted North Carolina October shadow unemployment rate at 8.5 percent. But the U.S. Bureau of Labor Statistics reported the state's official October rate at 5.7 percent.

Seasonally adjusted unemployment data account for hiring fluctuations that occur depending on the season, such as retail stores adding staff for holiday business.

Kleckley has not determined the shadow unemployment rate for the Asheville metro area – which consists of Buncombe, Haywood, Henderson and Madison counties – or North Carolina counties.

But Kleckley said that in all North Carolina metro areas and counties, the "real" unemployment rate is likely between 2 percent and 2.5 percent greater than the official rate released by the federal government.

If Kleckley's correct, that means the Asheville metro area's reported September nonseasonally adjusted unemployment rate of 4.3 percent – the lowest in the state – could be as high as 6.8 percent.

"However, the Asheville shadow rate should still be one of the state's lowest," he said.

The national, state and local implications of this phenomenon of data inaccuracy could be the distortion of natural supply-and-demand economics.

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