DECLINING LABOR FORCE
The Providence Journal, Sunday Business Section, Opinion Page, March, 1999
This year, the process of incorporating data revisions for last year and recalculating the Current Conditions Index (CCI) was both surprising and discouraging. Originally, the CCI indicated that a growth spurt had occurred in the last quarter of 1997 that extended through the middle of 1998. The revised data show a far different picture: this growth spurt never materialized. Instead of the string of 92s (out of 100) we thought we had experienced during the first part of 1998, we found ourselves at a plateau of 75, which was the value for each of the first six months last year. More upsetting, the recalculated CCI shows that we were only able to improve on year-earlier values three times last year.
So, Rhode Island 's rate of economic growth did not "de-couple" from that of the US in late 1998 as originally thought. The modest acceleration in growth we experienced during the fourth quarter of last year apparently indicates that we finally "coupled," but fairly late in this recovery.
Why was the CCI revised downward? Contrary to my fondest wishes for data revisions -- that there would be upward revisions to our labor force, eliminating the year-over-year declines in the second half of 1998, the revised data indicated that our labor force actually declined for all twelve months last year! Add to this unemployment rate changes indicating no improvement in the first part of 1998 and we quickly dropped from 92s to 75s.
In my ongoing attempts to put a positive spin on Rhode Island's economic climate, I decided to develop a monthly index that is as favorable as possible to Rhode Island based on the one indicator that most people here seem familiar with: our unemployment rate. For lack of a better term, I will call this the Jobless Improvement (JI) Index. The idea behind the JI Index is simple: reward both below-average rates of unemployment and substantial improvements in the overall rate.
The reason for choosing this framework was simple: while Rhode Island's January 1999 rate of unemployment, 4.4 percent, was the highest by far in New England and slightly above the national average of 4.3 percent, the annual decline in our rate was substantial. This two-dimensional focus thus permits us to partly "override" our unemployment rate rank of 34 for January by focusing also on the sharp drop of 0.9 percentage points we experienced (giving us a rank of 5th in terms of improvement).
The JI Index score for a state is the sum of two components -- the difference between that state's unemployment rate and the national rate plus the difference between that state's unemployment rate change and the national change. Since below-average rates of unemployment are preferable (a negative first component), and we prefer large declines in our rate (a negative second portion), large negative values of the JI Index are consistent with either very low unemployment rates, a rapid decline in the rate, or both.
The table gives the JI Index values and rankings for January 1999. Please note that I have not penalized states for the first letters of their names in these rankings, so a number of ties exist. For Rhode Island, our unemployment rate of 4.4 was 0.1 percentage points above the national average (+0.1). Our decline, 0.9 percentage points, was 0.6 percentage points better than the national change (-0.6). Our score was: (+0.1) + (-0.6) = -0.5, which gives Rhode Island a rank of 24th among the fifty states (tied with Kentucky and South Carolina). The correct way to interpret this value is to say that for January, the combination of the level and change in Rhode Island's unemployment rate in total was 0.5 percentage points better than the national averages for these measures.
Maine was ranked second in January: its rate of unemployment, 3.4 percent, was 0.9 percentage points below the national average (-0.9) and its decline of 1.8 percentage points was 1.5 percentage points better (-1.5) than the national decline of 0.3. Their score: (-0.9) + (-1.5) = -2.4. Notice that three of the six New England states are in January's "top ten." Unfortunately, Rhode Island still fared the worst among the New England states. Oh well.
Back to the drawing board? Fortunately, no. The just-released February unemployment data for Rhode Island indicate that we have improved our JI Index value all the way to -1.7! In the coming week, we see how much higher this has moved us in the national rankings. Each month I will release values for this Index and post them on my web site: http://members.home.net/lardaro/JII_monthly.htm