What Job Creation Versus Job Destruction Says About Rhode Island’s Economy, Part 1 of 4

In his latest Saturday column, WPRI’s Ted Nesi highly recommends a new blog called CoffeeBlack RI.  RIPR’s Ian Donnis seconded the recommendation on Twitter.  Such recommendations aren’t surprising.  Both Ted and Ian have always been very supportive, among mainstream media types, of Anchor Rising and other non-mainstream blogs.

When Paul Dion, Director of Revenue Analysis for the state government, chimed in to emphasize the recommendation, however, it piqued my interest.  Dion is obviously very well informed about economic matters in the state and is generally understood to be a pretty conservative guy, but he lives in a world where increases in state revenue produce a plus mark on his spreadsheets, and as I’ve become more involved with state-level policy, it has seemed to me that his perspective colors his analysis in a way that I think obscures his understanding of what the state needs.  (I don’t doubt he’d have some reciprocal complaint about me and my analysis.)

That being the case, I wasn’t surprised to see that one of CoffeeBlack’s recent posts presents a finding that, he or she says, “goes against the local narrative that RI is uncompetitive and its business climate is stifling business investment and hiring.”  According to the post, the data suggests that our jobs problem isn’t one of business creation and expansion, but of business contraction and closure.  So, “if RI’s firms were not shrinking or closing at rates faster than Mass, RI’s job performance would mirror Massachusetts.”

From the rest of the post, one gets the sense that CoffeeBlack thinks that sort of jobs problem tends to be more difficult to resolve with policy, which means, ultimately, that the blame on legislators can be eased and (as Mr. Dion might like) dramatic reductions in taxes and the size of government might not produce the desired effect.

So does this mean get-the-government-out-of-the-way types have to reevaluate and consider the possibility that there isn’t much government can do one way or another?  I don’t think so.  Looking at the numbers, I think CoffeeBlack is, in one sense, looking too narrowly and, in another, looking too broadly.

Sides of the Ledger Interact

On the too-narrow front, CoffeeBlack’s analysis errs in assuming one can look at just one side of the ledger.  I mean, wouldn’t a “stifling business climate” help to explain businesses’ contracting and closing?  You could walk into a sauna in your winter coat just as easily as you could walk into any other room.  It’s staying in the room that depends on the atmosphere.

The two sides of the ledger are inseparable for another reason.  It’s simply a tautology to declare that maintaining a good metric while fixing a bad one would improve things overall.  But it seems likely that the number of business closings and contractions has the effect of driving up openings and expansions.

After all, workers who lose their jobs tend to want to find other ones.  If they worked for small businesses, they may be prepared to start their own.  Additionally, if a business closes in some industry, no matter how poorly it was performing, it probably leaves a gap in the market for some other new or surviving business to fill.  That might produce a need to hire.

In other words, if Rhode Island’s “firms were not shrinking or closing at rates faster than Mass,” their openings and expansions probably wouldn’t be as rosy.  So, digging down into the overall jobs numbers to look at the increases versus the decreases might not shed much light on what’s happening with the state’s job market.  It might even lead one down the wrong path to finding a solution to the primary problem of overall employment in the state.

This is especially true because CoffeeBlack uses the job change rates from one calendar quarter to another. His or her charts, in other words, could contain the same people being fired and hired throughout a given year.

This all dovetails pretty neatly with my running analysis of the difference between RI employment and RI-based jobs.  The basic observation is that RI-based jobs have been on a steady increase since the market crash, albeit less than inflation, while the measure of Rhode Islanders who say that they are employed has struggled to improve at all over the long term.  My working hypothesis was and continues to be that this indicates a struggling “entrepreneur sector” of people who are self employed, with or without other employees.  The hypothesis has gained credence as I’ve looked at other possibilities, like the improbability that increases in employment are explained by out-of-state jobs and the minimal degree to which we can conclude that the economy now has an increasingly high proportion of part-time jobs.

In other words, the RI-based job growth represents established companies that are absorbing more and more of the economy in Rhode Island, at the expense of the self-employed segment, which is presumably more responsive to economic ups and downs and perhaps is more likely to innovate and find new directions for the marketplace to go.

CoffeeBlack suggests that our legislators and (I’d add) other elected officials, more generally, tend to focus on gimmicks that might make businesses want to “locate or start-up here… which basically means existing businesses become second class citizens.”  We can see an echo of this attitude in the notion that government must reshape and retrain the people of Rhode Island to make us more attractive as a workforce for somebody else.  In both cases, it’s an implicit suppression of the actual interests of locals in the hopes that somebody, somewhere, will swoop in and work some sort of magic that we haven’t been able to figure out on our own.

Add to this an increasing tendency to use public policy to pick particular sorts of businesses and the ever-ratcheting regulations that make it more difficult to get rolling in somewhat permanent occupations (like plumbing and hair cutting).  What it all gets us, I’d suggest, is a situation in which existing businesses go under and the workers (joined by new job seekers) can’t find the sort of work they want, so a good number of them leave.  Those who stay make a go of contracting or starting their own companies, but many of them are either cycled around into established companies or are ushered out.

For more detail, we have to look at why, from a different perspective, CoffeeBlack’s analysis is too broad, which I’ll do in a separate post.


Of the following two issues related to Rhode Island’s public schools, which one is a greater concern?

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