By in
Rhode Island’s Future
It seems everyone has a theory on why Rhode Island’s economy
stinks. Now the Boston Fed has one too.
“This paper seeks to discover why
Rhode Island experienced a more severe downturn during the Great Recession than
any other New England state and why it continues to lag other states in the
region and the nation as a whole in some measures of labor market health,” writes senior economist for the
Federal Reserve Bank of Boston Mary A. Burke.
“The three sectors that contributed
most to Rhode Island’s poor relative performance in the region were finance,
government, and manufacturing, in that order,” Burke writes.
“Had Rhode Island
performed only as poorly in each of these latter three sectors as Connecticut,
the second-worst-performing state in the region, virtually all of the
difference … between Rhode Island and Connecticut in terms of peak-to-trough
percentage job losses would have been eliminated.”
It’s well-known that Governor Don
Carcieri shrank state government right before the crash. Burke says this didn’t
help.
Like most who muse over this question,
Burke cites the loss of manufacturing jobs as a contributing factor – though
she says globalization was already doing a number on that sector. “The state’s
steep manufacturing losses most likely contained a large structural component
that was already in force prior to the recession.”
You can see in this chart that
unemployment was somewhat steady as manufacturing was steadily dipping, and
that unemployment spiked when construction sank.
But there was something to Rhode
Island’s relatively uneducated manufacturing sector that didn’t bode well for
them when the recession hit.
“…Rhode Island had by far the highest
pre-recession concentration of high-school dropouts in its manufacturing sector
among the New England states,” Burke writes.
“At the national level, high school
dropouts in manufacturing were not especially vulnerable to job losses as
compared with other manufacturing employees. Therefore, Rhode Island’s high
concentration of dropouts in manufacturing, all else being equal, would not
have predicted an excess of total manufacturing job losses.
"However, high
school dropouts in Rhode Island’s manufacturing sector experienced job losses
in the recession at a rate close to three times the national rate and
contributed a full one-third of Rhode Island’s manufacturing job losses, a
larger share than in any other New England state.”
Of course, globalization, shrinking
government, and a poorly-educated workforce didn’t cause the Great Recession
all by themselves. “…the housing bust was stronger in Rhode Island than in any
other New England state except Connecticut,” writes Burke.
And the housing bubble, which
precluded and ultimately led to the housing burst, was doing a fairly decent
job of hiding the damage done to the state’s economy from the flight of
manufacturing. When the construction workers started looking for new jobs,
things got real bad for the manufacturing workers.
“Once construction activity began to
plummet in Rhode Island, displaced manufacturing workers had far worse
re-employment prospects than during the construction boom,” she writes.
That was then. Burke says there’s now
some reason for optimism. Though I’m inherently skeptical of anything that
takes this level of economist-speak to explain.
She writes,
“If we compute the fraction of total employment losses (peak-to-trough) that have since been recovered — by taking the difference between the peak-to-trough percentage change in employment and the peak-to-current percentage change inemployment and dividing this difference by the peak-to-trough percentage change — Rhode Island ranks last in the region. However, in terms of jobs recovered since the trough in terms of raw percentage points in relation to the pre-recession peak employment level in a given state — which is the absolute value of the raw difference described in the preceding sentence — Rhode Island ranks second-best.”
In layman’s terms, you can crunch the
numbers both ways. But what’s interesting is the report indicates that while
the Providence metro area (from roughly Warwick to Fall River) helped the state
as a whole fall into the recession, it hasn’t been helping it climb out.
“Providence also places second-last
(again behind Norwich) in terms of trough-to-current employment change, even
though Rhode Island placed second-best on this score among New England states.
Since the trough, then, Rhode Island’s relatively strong performance belies the
relative performance of the Providence” area.
Bob Plain is the editor/publisher of Rhode Island's Future.
Previously, he's worked as a reporter for several different news organizations
both in Rhode Island and across the country.
