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R.I.'s Falling Jobless Rate is Little Solace
The Providence Journal, Commentary Page
May 2013

The recent release of Rhode Island’s labor market data for March was truly extraordinary. Just about everyone in this state focused exclusively on one element of that report: our state's unemployment rate. While that rate fell to 9.1%, clearly below where it was one year ago and an improvement over February’s rate, this virtually exclusive focus on our state’s unemployment rate is largely unjustified for two reasons. First, it provides a highly misleading picture of how well Rhode Island’s economy is performing at present. Second, their interpolation of this rate into forecasts of possible future rates of activity is clearly misguided.


Apparently unbeknown within Rhode Island is the fact that the unemployment rate is a lagging economic indicator. When an economy improves or deteriorates, the number of people or not actively seeking work changes, which moves the unemployment rate in a way that provides a somewhat misleading picture of the direction of how well or how badly the economy is doing at that time. In March, Rhode Island’s labor force declined, as some persons retired and others dropped out of the labor force, unable to find acceptable employment. This reduced the jobless rate below where it would have been had it the labor force not declined. Trust me: this is hardly a new phenomenon and it should come as no surprise, given that Rhode Island’s resident population has been declining continually for almost nine years.


Perhaps even more extraordinary was the collective willingness to extrapolate the future path of our state's economy based merely on this single lagging indicator. Think about that for a moment: that’s like driving your car but looking only in the rearview mirror. Good luck getting home! Yes, our jobless rate declined, as it has for several months now. A more correct extrapolation of this decline is that it largely reflects last year’s second-half acceleration, not any possible re-acceleration at present. As layoffs here now appear to be rising once again, and retail sales have clearly slowed, preserving these recent improvements in our jobless rate may prove to be somewhat challenging.


All of this, however, entirely overlooks the context of relative magnitudes. While it is true that Rhode Island’s jobless rate has been declining of late, so too have the rates in most other states. In January, for example, just after the declining rate celebration here had begun, our state’s elected officials discovered that the rates in many other states had also declined, leaving Rhode Island tied with California for the highest jobless rate in the US. So much for the small size argument our state’s elected officials likely would have used to explain this, or the metrics moving in the correct direction argument. This was an excellent illustration of the historic mindset of our state’s elected officials: they are Paropic. This term, which I invented about a decade ago, reflects the fact that our state’s elected officials tend to be both parochial and myopic: They tend to focus far too much on the present and tend not to compare to other states. As for our March jobless rate improvement, this still left Rhode Island with the sixth highest rate nationally, hardly a cause for celebration.


To truly understand the underlying cause of our state’s persistently high jobless rate, one need look no farther than payroll employment. For Rhode Island, our employment peak occurred in December of 2006, a full year before the US, employment here fell much farther than for our region or the nation, and it has recovered less than one-fourth of its loss. Even if one attempts to paint this in a positive light, considering the employment gain since our state’s trough in 2009, we come up short again, as payroll employment here has risen by less than three percent, well below that for the US, New England, or our neighboring states. Think about that for a moment: not even our small denominator (the reduced level of employment) can help us!


If you want to see how our state’s jobless rate has been performing over the past several years, you need go no farther than taking a chart of payroll employment, flipping it around, and then turning it upside down. In an eerily similar parallel, it we want to truly improve Rhode Island’s economic fate, we also need to flip the common practices of our state’s elected officials and turn them upside down. Successfully improving our state’s economy is far more difficult than merely going to Staples and purchasing an Easy button.

by Leonard Lardaro


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