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BankRI, Lardaro on the Economy Series
July 2004


In a previous article, I noted that, since January 2002, when Rhode Island’s current recovery began, the state’s job growth had actually outpaced national growth.  In the same article I warned   that our strong performance would not be sustainable when the character of the recovery changed. Well, that time has arrived. And Rhode Island’s recent poor job performance relative to the nation is possibly the best-kept secret in this state.
For the past several years, Rhode Island has enjoyed an enviable position that it has only recently begun to relinquish – above-national rates of job growth accompanied by unemployment rates below the national average. The basis for this, I’m sorry to say, is not a vibrant economy with a highly favorable business climate. On the contrary, Rhode Island remains a high-cost, high-tax state whose economic climate is anything but hospitable. The fact that we failed to attract much of a high technology presence in the 1990s, as it turns out, actually spared us from the severity of job loss that successful “high tech” states experienced. Combine this with the fact that our primary areas of employment (Health Services, Tourism, and Not-for- Profits) are not exactly springboards of job growth, but that they did help us sustain our job base in the last recession, and one of the great economic ironies for Rhode Island emerges: our “negatives” have acted as “positives” during this recovery.

Up until 2004, that is. Chart 1 shows payroll employment for Rhode Island and the US expressed as percentages of their January 2004 values. While US payroll employment was surging in March through

May, Rhode Island’s employment actually declined for both March and April. While May brought a return to job growth, the jobs added were barely enough to return employment to its January 2004 value. Chart 2 shows that Rhode Island’s unemployment rate has returned to the national rate in the last couple of months. 

The basic problem for Rhode Island continues to be that it has failed to define its dominant niche in the information age. And, Rhode Island made the transition from a manufacturing-based to a service and information based economy in late 1987! What is desperately needed is an overhaul of our tax system and cost structure. Hopefully, this will be done in a systematic way, where changes to our tax system and cost structure are consistent with the dominant niche(s) we decide to “hitch our wagons” to.

In next month’s article I will look at the economic initiatives that were funded (or not funded) in this year’s State budget, and their impacts on future growth prospects and the establishment of a niche.


by Leonard Lardaro

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