PROVIDENCE, R.I. (WPRI) – Rhode Island’s unemployment rate fell to 8.8% in April, reaching the lowest level in four and a half years thanks to a shrinking work force, according to new data released Thursday.

Rhode Island employers added 500 jobs in April, the fifth increase in the last six months. The state would need to add another 29,000 jobs to get back to the peak employment level reached in 2006, which wouldn’t happen until February 2018 if the pace of job growth in April continued.

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Massachusetts achieved a happy milestone in January, as employment in the Bay State reached 3.31 million jobs – passing the pre-recession peak of 3.3 million reached in April 2008, and meaning Massachusetts has regained all the jobs the state lost during the Great Recession.

“The numbers are really pretty remarkable,” one private-sector researcher marveled to The Boston Globe.

They also offer a grim contrast with the numbers in Rhode Island, which has only regained 8,700 of the 39,600 jobs it lost during the downturn. Put another way, Massachusetts has recovered 110% of the jobs it lost during the recession; Rhode Island has recovered just 22%.

Here’s a chart – Rhode Island is blue, Massachusetts is red, and 100 equals previous peak employment:

A caveat: the 496,400 jobs Rhode Island had in its peak month (December 2006) was the state’s all-time record high, but the 3.304 million jobs Massachusetts had at its previous peak (April 2008) was not. The highest-ever employment level in Massachusetts was 3.385 million jobs back in February 2001, before the dot-com bubble burst; the Bay State still has 66,500 fewer jobs now than it did then.

Here’s what the same chart looks like if 100 equals the all-time highest employment level for each state:

IHS Global Insight predicts Rhode Island won’t return to its pre-recession number of jobs until sometime after 2017, or at least half a decade from now. Only Nevada and Michigan are in the same boat:

• Related: RI has lost 10% of its prime working-age population since 2006 (March 4)

PROVIDENCE, R.I. (WPRI) – Rhode Island’s unemployment rate inched down in January to the lowest level in four years as the state’s work force continued to shrink, new data released Thursday shows, but employers in the state added jobs for the third straight month.

Read the rest of this story »

• Related: RI has lost 10% of its prime working-age population since 2006 (March 4)

One of the alternative ways economists check the health of the job market is by looking at the employment status of “prime-age” adults – defined as those between the ages of 25 and 54. Those are the years when most people are focusing on their careers, raising families and saving for retirement. Looking specifically at 25- to 54-year-olds also allows analysts to look past changes caused by demographic shifts as the baby boomers age.

The prime-age numbers for Rhode Island are striking and worrying: excluding soldiers and institutionalized individuals, the state’s civilian population ages 25-54 plunged by 46,000 between 2006 and 2012, a drop of 10% in just six years, according to the Bureau of Labor Statistics. Among those who remained, the share with a job dropped by 16% and the number of unemployed more than doubled.

Here’s a chart:

While the 2012 unemployment rate for prime-age Rhode Islanders was 10%, if the 46,000 prime-age workers who’ve left since 2006 had stayed and continued to look for a job, their unemployment rate would have been 19.7% – almost twice as high.

The statistics for prime-age residents tell a different and more troubling story than the Census data for the total population. The BLS says Rhode Island’s total civilian non-institutional 16-and-older population actually inched up by 0.5% between 2006 and 2012. That’s largely because the number of residents ages 55 and older jumped 19%, offsetting the loss of 25- to 54-year-olds.

This appears to signal that older Rhode Islanders are staying in the state but aren’t being replaced by a new generation of younger residents. Rhode Islanders 65 and older made up a larger share of the population than any other age group in 2012, whereas six years ago they were only the third-largest.

More older Rhode Islanders want to hold down a job compared with before the recession, as well: the number of 65-plus residents in the state’s labor force jumped from 21,000 in 2006 to 30,000 in 2012, and the number of 55- to 64-year-olds in the work force rose from 77,000 to 91,000. (There was also a small increase in the 20- to 24-year-old work force, which rose by 3,000.)

Here’s how the age composition of the work force has changed:

• Related: Baker: RI’s problem isn’t population loss, it’s a lousy economy (Jan. 7)

An earlier version of the fifth paragraph in this post transposed the decline in the prime-age population (46,000) with the decline in the prime-age labor force (42,000).

On Friday, the U.S. Bureau of Labor Statistics released another statistic about Rhode Island’s job market: the employment-population ratio, which measures how many people have a job out of all the state’s residents ages 16 and up who aren’t in the military or behind bars. The news wasn’t good.

Rhode Island’s employment-population ratio in 2012 was 59.4%, basically unchanged from 2011 – when it dropped to a new low. As recently as 2006, when employment peaked in Rhode Island, the employment-population ratio was 65%. Here’s a chart showing what’s happened:

Long-term unemployment can do long-term damage to those who are out of work for an extended period of time, so it’s unclear how long it will take for Rhode Island’s employment-population ratio to recover to its 2006 level (assuming it does eventually).

This helps demonstrate why experts caution against looking solely at the unemployment rate – it can fall because people give up on looking for work or drop out of the labor force for other reasons, which aren’t signs of healthy job growth. As for the jobless rate? Rhode Island’s 9.9% was the nation’s highest in December.

• Related: How high unemployment changed where Rhode Islanders work (March 1)

The only industry that added a significant number of employees from 2007 through 2012 was education and health services, which is primarily nonprofit and heavily dependent on government subsidies, and which added 5,700 jobs. By contrast manufacturing – which started with half as many jobs as education and health to begin with – was still down by 11,600 jobs as of December.

Here’s a chart showing the change in total Rhode Island employment by industry:

And here’s a more granular look that breaks out some of those large categories into smaller ones. Health care and social services, for example, employs the bulk of folks in the Education & Health Services sector above, while retail is the primary employer in the Trade, Transportation & Utilities category:

PROVIDENCE, R.I. (WPRI) – Rhode Island’s painfully slow economic recovery hit an important symbolic milestone in December, as the jobless rate fell below double-digits for the first time in nearly four years, new data released Thursday shows.

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But Dean Baker, the liberal economist and co-director of the Washington-based Center for Economic and Policy Research, said Monday he thinks the focus on population loss is somewhat misguided.

“I think it’s misdiagnosing the problem,” Baker told WPRI.com. “The problem is you have a bad economy, and because you have a bad economy people are leaving. But the problem is not that people are leaving; the problem is the bad economy.”

“If the people stayed there it wouldn’t make anything better – just imagine if you had the 25,000 people and they stayed there and they’re all unemployed,” he said. “Obviously they wouldn’t all be unemployed, but assume the bulk of them would be unemployed.”

In Baker’s view, a declining population isn’t a bad thing in and of itself. “There’s always an upside to it,” he said. Housing will be more affordable, infrastructure will be less strained, roads will be less congested, beaches will be less crowded. The real problem is why Rhode Island’s population is declining.

“There will be offsetting factors that would make it a positive, but again, in the context of people leaving because of a weak economy, it’s pretty hard for me to imagine that the net on that would be positive,” he said.

Here’s our 5:30 Q&A on Rhode Island’s population decline:

PROVIDENCE, R.I. (WPRI) – Rhode Island’s unemployment rate stayed at 10.4% in November as more state residents said they were working even as the number of jobs located inside the state declined, the R.I. Department of Labor and Training reported Thursday.

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Bernstein argues total employment growth nationwide is “largely driven by macro and global trends,” but says state and local officials can make a difference in whether their jurisdictions are the beneficiaries – that is, whether their locales get a fair share (at least) of the jobs being created. He says tax breaks and special deals à la 38 Studios aren’t the right approach, instead offering these two ideas:

First, what matters more to thriving businesses is the quality of public goods, including physical infrastructure and the quality of the workforce. Yes, the tax base matters, but the success stories are not the places that offered the most sugar in terms of tax cuts. It’s the ones that offered solid communities with world class infrastructure – the roads, airports, schools, and skilled workforce that businesses need to succeed. …

The second thing I think we know about the role of sub-national politicians in job creation has to do with regional aggregation or clustering effects that are often very important to local job growth. Cities can develop as research hubs with a quality university at the core; a port city can develop transportation infrastructure that creates lots of new opportunities, and so on. These clusters can develop organically, like the old railroad and river-confluence cities, but these days such developments tend to be more strategic.

Read my February interview with Bernstein for more.

• Related: Robitaille: 38 Studios lesson is don’t pick winners and losers (May 15)

The largest over-the-year decrease in employment [as of July] occurred in Milwaukee-Waukesha-West Allis, Wis. (-6,000), followed by Brownsville-Harlingen, Texas (-4,700), and Providence-Fall River-Warwick, R.I.-Mass. (-4,100). The largest over-the-year percentage decrease in employment was reported in Dalton, Ga. (-6.0 percent), followed by Great Falls, Mont. (-4.8 percent), Hot Springs, Ark. (-4.7 percent), and Danville, Ill. (-4.5 percent).

Slate’s Matt Yglesias has more on the problem.

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Rhode Island’s “underemployment” rate was 18.9% over the past year, meaning nearly one in five workers wanted a full-time job but couldn’t find one, according to newly released U.S. Labor Department data.

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• Related: Another lousy ‘jobs’ report; few signs of life in the RI economy (July 20)

The seasonally adjusted unemployment rate ticked down again – it was 10.9% in June, only the second month it’s been below 11% since June 2009. But every other comparison with that month – when the Great Recession officially ended nationwide – is a picture of stagnation locally.

The number of unemployed Rhode Islanders last month was 60,266, barely changed from the 61,281 unemployed three years earlier. The number of employed Rhode Islanders has fallen to 494,982, down from 503,353 then. Rhode Island’s labor force has shed 9,386 people over that period, falling to 555,248.

The state’s total nonfarm payroll has dropped to 457,100, lower than in June 2009. As the nation added about 3 million jobs over the last three years, Rhode Island actually lost ground.

Rhode Island’s job market peaked in January 2007, which is now five and a half years ago. Without a major economic boom, it’s growing difficult to imagine how the state’s job market will avoid suffering a lost decade.

• Related: Providence one of only two big US metro areas still losing jobs (July 20)

PROVIDENCE, R.I. (WPRI) – Rhode Island’s unemployment rate dipped to 11% in May as more residents jumped into the job market for the first time in two years, the R.I. Department of Labor and Training said Friday.

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Rhode Island won’t add enough jobs to regain its pre-recession employment level until sometime after 2017, more than five years from now, according to a new analysis by IHS Global Insight reported by The Wall Street Journal.

Only two other states – Michigan and Nevada – are facing a comparably long slog to recovery. Even then, the WSJ’s Phil Izzo notes, “getting back to where a state started doesn’t account for the jobs needed by new entrants to the labor force over the past four years.”

Employment in Rhode Island fell from 496,400 in December 2006 to 457,000 in November 2009, a drop of 39,400 or nearly 8%. The number has barely budged since then, with employment up by just 800 jobs as of April – still 38,600 away from the December 2006 peak.

The IHS forecast suggests Rhode Island’s job market will spend at least 11 years suffering from the recession and its aftermath.

• Related: Providence area won’t recover lost jobs for another 6 years (June 20)

(map: IHS Global Insight, via WSJ)

PROVIDENCE, R.I. (WPRI) - Rhode Island’s job market continued to buck the national trend – and not in a good way – in March, as the state’s unemployment rate ticked up to 11.1%. And that wasn’t the only bad news in the Department of Labor and Training’s monthly report.

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If it weren’t for the Golden State capital of Sacramento, there wouldn’t be a single large metropolitan area in the United States where Providence could say the job market is worse.

Among the country’s 50 biggest metro areas, only two – Sacramento and Providence – reported an overall decrease in employment during the 12 months ended in February, the Bureau of Labor Statistics reported this week. The Providence metro area includes Rhode Island and part of Bristol County, Mass.

“In Sacramento, the decline was mostly due to continued drops in state and local government employment; private employment was essentially flat over the year,” The Economist’s Ryan Avent reports. “In Providence, by contrast, government employment rose; lingering weakness across the economy seemed to be the issue.”

The Economist posted this chart:

Providence is further from the bottom of the pile when we start the clock in June 2009, the official end of the national recession. The local metro area ranked 44th out of 50 for job growth over the subsequent two and a half years; Sacramento ranked dead last. And when the start is pushed all the way back to December 2007, Providence escapes the bottom 10.

Of course, Rhode Island’s recession started roughly a year before the nation’s. Employment in the Providence metro area peaked in January 2007 at 579,500 jobs; bottomed in August 2009 at 537,000; “peaked” again in July 2011 at 548,800; then started falling again before bottoming at 537,500 last July. The job count was 542,800 in February. Here’s a chart:

So the Providence area lost 42,500 jobs from January 2007 to August 2009 and had gained only 5,800 as of February, more than five years after the peak. Without a sudden surge in growth, it’s hard to see how Providence avoids a lost decade (or worse). And it’s all quite a contrast with nearby Boston, which is No. 7 in job growth since June 2009.

“The good news is that, on current trends, quite a lot of the largest metropolitan areas will be back above pre-recession employment levels within a few months,” Avent concludes. “But a handful of places will bear the scars of this recession for a long time to come.” Unfortunately, Providence is probably one of those places.

• Related: Providence area won’t recover lost jobs for another 6 years (June 20)

Yet the chart shows Rhode Island is getting less out of this than most states. The only state with a more urban, less productive work force than Rhode Island is Nevada, which is also the only state with an unemployment rate higher than Rhode Island’s (12.3% versus 11% in February). Take a look:

Many of the states hit hardest by the housing bust are also showing signs of health. Florida’s unemployment rate has fallen to 9.4 percent from 10.8 percent a year earlier. California’s rate is still painfully high at 10.9 percent. But it has dropped from 12 percent a year ago, a sign of progress.

Nevada has the nation’s highest unemployment rate, at 12.3 percent. The state lost 12,800 jobs last month, the most of all states. That was also the biggest percentage job loss of any state.

Rhode Island’s unemployment was the second highest, at 11 percent, up slightly from the previous month. Its rate hasn’t improved much, declining only 0.3 percentage points in the past year.

Update: As if that wasn’t enough, Calculated Risk adds this grim statistic:

Only three states still have double-digit unemployment rates: Nevada, Rhode Island, and California. This is the fewest since January 2009. In early 2010, 18 states and D.C. had double digit unemployment rates.

As you can see from the CR chart at right, Rhode Island has had relatively little decrease from its peak unemployment rate compared with other states. Also, Michigan’s recovery looks pretty extraordinary.

The number of Rhode Island residents with a job fell to a new low of 497,300, down by nearly 52,000 since employment peaked more than five years ago in January 2007, the Department of Labor and Training said Friday.

The unemployment rate ticked up to 11%, a decrease of less than a percentage point from the peak rate of 11.9% in January 2010. The unemployment rate was 4.8% in January 2007.

The size of Rhode Island’s labor force shrank for the 22nd month in a row. There are now 559,000 Rhode Islanders officially classified as employed or actively looking for a job, down by nearly 18,000 since the peak in January 2007 and down by nearly 14,000 since a short-lived uptick topped out in April 2010.

A separate survey of Rhode Island employers offered a sliver of good news, showing 458,400 jobs on their payrolls, an increase of 500 from January – the worst month of the downturn. Payroll employment in the state is down by 38,000 since it peaked in December 2006.

Another possible reason for optimism in the employer survey was the addition of 700 temp jobs, which can sometimes be a precursor to an increase in permanent full-time positions. Nor have all industries been in decline over the last year: education added 2,000 jobs and professional services added 1,100.

• Related: RI facing ‘a lost decade’ after jobless rate hits 11% in new data (Feb. 29)

And who had the kind of idea Cassidy thinks Obama should have pushed for to make the stimulus more effective? None other than Rhode Island’s own U.S. Sen. Jack Reed, who finally got Congress to approve his cherished work-share program just last month.

Here’s Cassidy:

In Germany, the government uses wage subsidies to encourage firms to hoard workers during recessions rather than shedding them. … To make this job-sharing system work and help out the affected employees, the government pays them about sixty per cent of their lost salary. Despite a global recession and a European debt crisis, the German unemployment rate is lower now than it was in January, 2009.

Germany’s labor-market institutions are a product of the country’s history; introducing them wholesale to the United States wouldn’t be easy. But until recently the Obama Administration barely moved in this direction. It was left to Senator Jack Reed, of Rhode Island, to champion a federal job-sharing scheme, which was based on financing local initiatives, such as one in his home state. The White House finally adopted the idea in its 2012 budget, and Congress, in a recent agreement to extend payroll-tax cuts and unemployment insurance, agreed to fund a version of it. If the scheme is still in effect when the next recession begins, perhaps it will make the situation less severe.

• Related: WSJ says RI’s work-sharing program could be national model (Nov. 21)

Manufacturing companies in Rhode Island cut more workers than their counterparts in any other state from 2001 to 2011, according to a Wall Street Journal analysis of Moody’s Analytics data.

Rhode Island lost 37.1% of its manufacturing jobs over those 10 years, as the industry’s total labor force dropped from 64,500 workers in 2001 to 40,600 in 2011. The next-biggest declines were in North Carolina (34.9%), Michigan (34.7%) and New Jersey (34.2%).

Other New England states lost a smaller but still sizable number of manufacturing jobs from 2001 to 2011, with declines ranging from 30.1% in Massachusetts to 24.6% in Connecticut. The only state where manufacturing work grew was tiny North Dakota, which eked out a 2.5% increase by adding 600 jobs.

“Companies are concentrating many of their manufacturing investments in states where unions are weak and wages are relatively low,” and they’re also “shopping for lower taxes and regulatory costs,” the WSJ reported. More than 17% of Rhode Island workers belonged to a union in 2011, above the 12% national average.

Rhode Island was an industrial powerhouse in the early 1900s, with factories churning out textile, metal and machine products, but that changed in the years after World War II. Manufacturing’s share of the state economy fell from 29% in 1963 to 16% in 1997, according to the R.I. Economic Development Corporation. It was down to 10% in 2006 under a new measuring system.

Part of the state’s struggle over the last decade may be due to rising competition from abroad. Workers in Rhode Island and Bristol County, Mass., faced more risk from China’s economic rise than their peers anywhere else in the country except San Jose, Calif., according to an academic study reported by WPRI.com last fall.

The EDC classifies more than 2,900 Rhode Island companies as manufacturers, and improved productivity has allowed them to produce more goods with fewer employees in recent years. Even as Rhode Island’s total manufacturing work force plunged by nearly half from 1997 to 2010, the sector’s total output increased.

Update: A group of economists, including former EDC Economic Policy Council chief Rob Atkinson, is preparing to release a report arguing that the U.S. manufacturing sector is actually doing significantly worse than commonly thought:

What caused the job losses, in their view, is less the efficiency of U.S. factories than the failure of those factories to hold their own amid global competition and rising imports. The apparent productivity gains reflected in the official U.S. statistics have been miscalculated and misrepresented, they say, a position that has been at least partially validated by recent research. …

For starters, the reported productivity gains may be overstated because the statistics the government collects do not adequately reflect the changes that have come with globalization ….

But there may be another, broader problem with the manufacturing output and productivity figures.

Those numbers lump all manufacturing together when there are actually two very different trends afoot.

• Related: Why Apple doesn’t manufacture iPhones in Rhode Island (Jan. 22)

PROVIDENCE, R.I. (WPRI) - Rhode Island’s unemployment rate fell again in January, for all the wrong reasons.

The state’s jobless rate ticked downward to 10.9% in January from 11% in December, the R.I. Department of Labor and Training reported Monday.

Troublingly, the decline wasn’t because the number of Rhode Islanders with a job increased but rather because the size of the state’s labor force shrank for the 21st month in a row. The reasons could include residents giving up on seeking work, leaving the state or returning to school.

The number of Rhode Islanders who were employed in January was 498,900, the lowest total since February 1997 and roughly the same level recorded back in the late 1980s. At that time there were nearly 50,000 fewer Rhode Islanders in the work force, putting the unemployment rate at about 3%.

Zachary Sears, an economist with Moody’s Economy.com who tracks Rhode Island, said last week the state is continuing to lose population. “To the extent that those weak demographics continue and don’t improve as the weak economy improves, it’s more symptomatic of a long-term problem and not just cyclical,” he said.

A separate survey of employers showed 457,700 jobs on Rhode Island nonfarm payrolls in January, down by 200 from the prior month, the department said. To put that in context, the statewide payroll was larger in January 1990, the first month for which comparable records are available.

The education and information industries had added the most jobs compared with a year earlier as of January, while the accommodation and food services and government sectors shed the most positions.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

• Related: RI facing ‘a lost decade’ after jobless rate hits 11% in new data (Feb. 29)

Programming note: Ted Nesi is away on Monday. Regular blogging will resume Tuesday.

PROVIDENCE, R.I. (WPRI) – It turns out Rhode Island’s job market wasn’t as ugly as it looked in 2011.

It was worse.

Rhode Island’s unemployment rate hasn’t fallen below 11% in more than two and a half years and was higher than originally reported throughout 2011, according to revised data released Wednesday by the Department of Labor and Training. Fewer residents were working or looking for work last year than first reported, as well.

“It shows that the recovery was probably a little bit slower than we thought,” said Zachary Sears, an economist with Moody’s Economy.com who tracks Rhode Island. He cited a number of factors that held back the economy in 2011, notably the euro crisis, the debt-ceiling debate and rising oil prices. “All those weights make for a very slow recovery.”

Rhode Island will not regain all the jobs the state lost in the downturn until 2015, the same year the unemployment rate will fall back to 6%, according to Economy.com’s forecast. The state began losing jobs in 2007, about a year before the nation as a whole.

“It comes back later and Rhode Island also went into recession a little earlier, so it’s a longer period of very difficult times,” Sears said. “That’s from 2007 and you get back there in 2015. That’s a long time. That’s almost a lost decade, so to speak.”

The so-called “benchmark revisions” adjust the employment data reported month by month during the prior year, which come from sample surveys, by comparing them with tax records and other data.

Among the most worrying revisions was the new estimate of the size of the labor force, which counts how many Rhode Islanders are working or looking for work. The state’s labor force dropped to 562,007 workers in December, lower than during the worst of the recession in the spring of 2009, partly because the state has continued to lose population.

“That’s not good,” Sears said. “It goes against our forecast. We expected a slight increase in 2011 that would come along with the improving economy, and that didn’t happen. That is worrisome.”

“We still have population turning around [in Economy.com's forecast] – it’s just been delayed,” he said. “But to the extent that those weak demographics continue and don’t improve as the weak economy improves, it’s more symptomatic of a long-term problem and not just cyclical.”

The new data shows Rhode Island’s unemployment rate rose from 4.8% in January 2007 to peak at 11.9% in January 2010, then slowly started to fall over the last two years. In 2011, the state’s private sector added a net 2,200 jobs while employment in the public sector fell by 1,100.

Sears did see one possible silver lining in the latest numbers. The revised data only extends through September, with survey figures being used for the last three months of the year. Income tax receipts and new claims for jobless benefits led him to thinks the current estimates overstate how weak Rhode Island’s economy was at the end of last year.

“If you look at the national economy, it picked up speed in the fourth quarter after weakness in the third,” Sears said. “There’s no indication that Rhode Island did anything different.”

“Rhode Island is a small economy,” he added. “Most of what determines the fate of Rhode Island happens outside of its borders.”

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

As President-elect Obama’s team raced to salvage the economy in the winter of 2009,

Bernstein left the administration last year and joined the Center on Budget and Policy Priorities in Washington as a senior fellow. He spoke with WPRI.com on Thursday about the economy, how Rhode Island can position itself for the recovery and whether the White House is like “The West Wing.” The transcript has been lightly edited for clarity.

Let’s start with a parochial question. Have you ever been to Rhode Island?

Oh, yeah! Lots of times. I’ve been there in my professional career as an economist, but I was also there once as a musician on the QE2 – the QE2 once went up to Providence. I played the string bass.

You’re a man of many talents. I wanted to start with the news of the day. The economic recovery has been looking surprisingly solid lately, with new jobless claims down this week and other hopeful data. What’s your current take on how the economy is doing?

Things are definitely improving, but we’re not out of the woods. The job market is finally getting better in a way that could develop into a self-sustaining recovery, but we really haven’t seen that yet.

A self-sustaining recovery is one where virtuous cycles are under way, where there’s enough employment and enough income in people’s paychecks to support businesses – they begin to experience increased consumer demand. That sets off a bunch of multipliers that leads them to restock their shelves, that sends orders back to factories, and so on. That’s what a self-sustaining recovery looks like. We haven’t had that ever since the bust in 2007. We’ve approached it, but we haven’t quite been there.

One reason was because key parts of the economy were still weighed down, the housing market most obviously – that, at this point, seems to be bumping along the bottom rather than falling. There used to be a time when the housing market was bringing the economy down, now it’s probably that the economy is bringing down the housing market. But that, quote, correction is largely behind us.

We’re getting back on track. Not quite there yet. When I talk about the weakness in the job market, you’ve got to remember there’s still 5.5 million people who’ve been unemployed for at least six months. That’s more than 40% of the unemployed; that’s an extremely high level of long-term unemployment. It’s going to be hard to really bring the unemployment rate down if we have that many people stuck in long-term unemployment.

Rhode Island gave President Obama his third-biggest vote share in 2008, yet it feels like his recovery is sort of leaving us behind. We’re still at 10.8% unemployment.

I always thought that pretty much every aspect of what went wrong was well-represented in Rhode Island. You had the housing bust. Manufacturing took a hit. Financial institutions. Governance issues. Every national economic challenge seemed to be amplified in Rhode Island, so I know what a hard slog it’s been there.

It’s been five years now since employment peaked here, and people are starting to feel a bit hopeless about the economy. What should be done? Are there ways to maximize growth locally, or do we just have to wait to get dragged along by the national economy, because we’re so small?

I definitely think that this is a time for state activism. In a way, in a place like Rhode Island you have to try to turn your disadvantages into opportunities. Rhode Island has a lot of aging infrastructure, and a lot of people who could be put to work fixing it, improving it. Rhode Island used to have a lot of factories. You really had a manufacturing footprint there – well, somebody is going to be making turbines, somebody’s going to be making advanced batteries, somebody’s going to be building the components of the smart grid. There’s no reason why it shouldn’t be in Rhode Island. It’s an aging infrastructure, but you have a manufacturing base in your history. You have good universities and a smart labor force.

I think what’s missing is the investment. There needs to be a program – and I would argue it has to be a public-private partnership, where Rhode Island partners with the private sector, with the federal government, and state representatives to make a play for these potentially expanding sectors: clean energy, the smart grid, repairing the damaged infrastructure. I’ve been a big advocate of fixing the public schools. A statewide energy-efficiency program for the public schools would be a neat idea. So I think what it’s going to take is public-private partnerships to generate investments in those kinds of ideas.

There’s been a lot of talk that the federal government should borrow more money right now while interest rates are low to put people to work doing infrastructure projects, for example. Do you think that holds on the state level?

I do. I know what the U.S. Treasury faces; I don’t know what bond yields look like for state markets – muni markets are less liquid than national by a long shot, and so it’s not going to be the case that the Rhode Island government can borrow at the same favorable rates as the Treasury. But this is actually a smart time – and again, especially a small state like Rhode Island, it makes sense to try to get some federal help.

Just this morning, I was testifying to the Senate Budget Committee and Senator [Sheldon] Whitehouse was there – President Obama’s also been supportive of this, as well; we did this in the Recovery Act – I could very much see a Whitehouse and a [Jack] Reed working on programs where the federal government could backstop some of the borrowing.

But of course we’d need Congress to act, then.

And that’s the problem.

It seems like it might be harder to be a liberal on economic policy on the state and local level because of balanced budget requirements. Just at the time you might want to spend more – during a recession – you have to cut back. I know that frustrates some of the progressives in our state legislature. What’s your advice for how folks should approach thinking about government spending on the local level, where you can’t do deficit spending?

I think it’s a great question. I think the first thing is to simply understand the facts behind countercyclical and pro cyclical spending. One of the reasons why austerity is such a terrible idea at times like this is because of exactly the dynamic you’re explaining. When you’re in a recession, or even in a slow-growth recovery like this one – particularly in Rhode Island – it’s like all the states are in a leaky boat with the federal government, and the only guy who’s got a bucket is the federal government. And when you go austere, you take their bucket away, too.

The key here is to stop being so knee-jerk anti-Keynesian, especially from the perspective of states. The American Jobs Act, which the president proposed as a follow-on to the Recovery Act, had $35 billion in state aid. I mean, Senator Jack Reed knows this very well, and he’s tried to do a lot to help states with fiscal relief. By definition, they have to balance their budgets.

That means they have only a few choices. They can look to rainy-day funds, but that’s tough and I doubt there’s much there; they can raise taxes; they can cut services. The latter two are pro-cyclical – they don’t counter the cycle, they make it deeper. And so you need the feds at a time like this. When you advocate austerity and anti-Keynesian measures, you’re taking the only guy in the leaky boat who can do something about the holes.

We’re having a debate right now here in Rhode Island about taxes. Many people feel they’re already too high in the state. Our governor, Lincoln Chafee, leans toward raising the sales tax and not the income tax because he’s afraid of driving people out to Massachusetts or Connecticut – I know the Center on Budget thinks that’s a myth. What are your thoughts about that, remembering too that we’re a small state? What’s the best way to do taxation in a pro-growth way, from your perspective?

Here’s an issue where I don’t know that size matters that much. You can tell me if I’m wrong.

Well, I’m not going to correct the guy who was the vice president’s economist.

Oh, no [laughs] – I’m just thinking out loud.

I think the thing to recognize here is that it’s very important not to whack your consumer base at a time like this. I described a few minutes ago the virtuous cycle that you need to get going here, where workers have a little bit more in their paychecks, so consumers are a bit more active, businesses begin to do a little better and regain some confidence, investors start to see this happening and, you know, you’re off and running. That’s the way recoveries evolve. If you go after your consumption base right now, you could jam that system.

The reason why high-end tax increases make more sense is because those folks are less liquidity-constrained. It’s not that they won’t object or they won’t feel it – I don’t want to argue that it just kinds of disappears into the vapor – but it is true that the marginal dollar to a middle-class person is more likely to enter that virtuous cycle than the marginal dollar of someone at the very high end of the scale.

So if you were looking for a way to raise tax revenue that was least injurious to growth you’d go to the high end for those reasons.

There’s no bigger strain on Rhode Island’s state budget right now than Medicaid. The costs are growing so much faster than tax revenue. It’s crowding out spending on higher ed and other areas even as we pare back benefits. Our federal match is back down to 52% or so after going way up under the stimulus law. Does Washington understand that problem? And what do you think should be done to make it more sustainable?

It’s impossible to say what “Washington” knows, because some people know it and some people don’t. I can tell you that the president knows it because I’ve discussed it with him. The president is well aware of that.

We talked about that in the context of the pressure on higher tutitions for public universities. This is precisely the time, when the job market is weak, that lots of people are returning to higher ed and that institution – public higher education – has always been, in my view, one of the key mobility ladders in this economy for middle- and lower-income kids, the fact that you have access to quality education like that. And to the extent that Medicaid is crowding that out – and the research is quite clear that it is – it’s a huge problem.

From Washington’s perspective, if you’re one of these legislators who believes the only way you can achieve a sustainable budget is by cutting spending or shifting costs to states, then no, you don’t get this at all. And there are lots of people who, unfortunately, don’t get it. Medicaid is itself on the table for spending cuts; in fact, if you saw the president’s budget in September, there were non-trivial cuts to Medicaid. I happen to believe that there’s really no fat in Medicaid to cut anyway. You can find ways to cut in Medicare that don’t hurt beneficiaries; I’m not sure you can do that in Medicaid. I don’t see how you cut Medicaid and still provide health services to disadvantaged Americans and their families.

The only way to crack that nut, especially in a downturn, is to do what we did in the Recovery Act, which is to kick up the federal contribution through FMAP when states are faced with the kind of pro-cyclical conundrum we talked about a second ago. That’s a very different kind of mindset than is operating right now.

What can the states do themselves? It’s a question that doesn’t have a good answer. The arithmetic here is simple. If I thought that Rhode Island’s Medicaid system had a lot of fat in it, I’d tell you to trim the fat. I don’t. So I think the solution here has got to be a federal one.

One other economic question I had for you is one we think about a lot in Rhode Island. Where are we going to get middle-skill jobs in the years to come – good-paying jobs for people who don’t go to college, the ones who maybe used to work in our factories? Does that concern you, nationally and for places like Rhode Island particularly?

It concerns me but I think there’s a way out, and I think it can work in Rhode Island, too. Health care is a sector where demand is booming – we just talked about Medicaid – based on demographics, in part, and this is a sector that’s created jobs every single month; even in the depths of the recession when the economy was hemorrhaging hundreds of thousands of jobs, health care was adding them.

You look at a city like Pittsburgh. There’s a city that largely lost its industrial base and ultimately shifted much more to one that is focused more on health care and related services. And by the way, that didn’t happen seamlessly – it took them about a decade. I’m not saying this is easy. But again, you can’t be passive about this. You have to identify the sectors where there’s either actual growth, like health care, or potential growth, like, say, clean-energy manufacturing.

There are, in fact, considerable middle-skill jobs in both those examples. When we think of health care, we should think of home health aides at the low end, we should think of medical technicians at the middle and, obviously, highly skilled physicians at the top end. There’s opportunity there.

Last question. It’s sort of a silly one, but everyone will want to know – is working at the White House like it looks on “The West Wing”?

[Laughs] Well, you know, I’ll tell you a secret – I never saw “The West Wing.” Never saw it. My wife watched it – I never watched it. I kind of get enough of that day to day.

I can only tell you that, once we were waiting for about an hour to go in to meet with the president, we were just sitting there, and finally someone said, “Geez, we could have seen a whole episode of ‘The West Wing’ by now.” I don’t think you have that kind of thing on “The West Wing.”

My sense from “The West Wing,” just from seeking clips, you get the sense that there’s a lot of pressure and energy all the time – that part’s true. That part’s true. Lots of intense pressure and energy. I mean, you’re sitting there in the Oval or the vice president’s office, and you’re talking about the same issues that I remember talking about at the water cooler at the Economic Policy Institute, but obviously the stakes were so much higher. That was different.

Any other thoughts on state fiscal issues?

I guess the only other thing I’d say is – this is the logic we were talking about earlier – because of the logic of state balanced-budget rules, the role of the federal government in preventing the kind of austerity measures that just make the downturn worse at the state level becomes more and more obvious to me every month when we get these jobs reports that show states continuing to cut.

It takes me back to the Recovery Act. A lot of people were very critical about how that worked out -

You can say that again.

Yeah, a lot of people were very critical of it, but one of the things that worked really quite seamlessly, and I’ve never seen any evidence to the contrary, was state fiscal relief.

Rhode Island balanced our budget on it. I watched the percentage go up.

The logic here is just extremely simple. You’ve got a glass that is barely a quarter full and the only source of relief there is the feds. This wasn’t about whether infrastructure was shovel ready, this wasn’t about whether people would spend their tax cuts – this was fungible money that went right to work, to preserve jobs and state services. So I actually think one of the more pronounced lessons I learned from the Recovery Act was the efficacy of state fiscal relief. And if you don’t believe it, just look at what’s happened since that’s ended. •

(photo: Center on Budget and Policy Priorities)

In December 2006, 69% of the state’s civilian noninstitutional population was in the labor force: 577,158 residents out of 837,598, a statistic also known as the participation rate. Only 28,272 of those residents didn’t have a job that month, giving Rhode Island an unemployment rate of 4.9%.

Over the next five years, the civilian noninstitutional population grew to 851,122 – but the percentage of the population in the labor force dropped from 69% to 66.3%. (Put another way, 586,546 Rhode Islanders out of 851,122 were either working or looking for work as of December.)

If the participation rate in December had been 69% instead of 66.3%, the number of workers – and therefore the number of people classified as unemployed, since by definition those people didn’t have a job – would have been significantly higher, pushing December’s unemployment rate to a whopping 14.2%.

That’s not to say Rhode Island’s unemployment rate is “actually” 14.2%. Those 22,310 people really aren’t in the labor force, whatever their reasons, so they don’t get counted. (As a comparison, the state’s “underemployment” rate, which also counts underemployed and discouraged workers, averaged 18.6% in 2011.)

It’s a reminder, though, that the official unemployment rate only shows part of the jobs picture – and statistics like this may help explain why Rhode Islanders were the gloomiest in the country about the economy last year.

For what it’s worth, the hope among economists and other analysts is that when the Labor Department does its annual revisions to the employment data in March, it will show Rhode Island’s situation in 2011 wasn’t as dire as it looks using the current numbers. Time will tell.

Update: Bloomberg News has a story about the same phenomenon happening at the national level.

Just 5.4% of Rhode Islanders described economic conditions in the United States as excellent or good in 2011, the smallest share in any state, according to Gallup polling. That was down from the already minuscule 7% who felt that way in 2010.

Oregon had the second-fewest optimists in 2011, but even they had 7.2%. More than half of Rhode Island residents – 52.9% – described the economy as poor last year, compared with 51% who said so in 2010.

Moreover, Gallup found Rhode Islanders’ confidence about the economy has barely budged in the last three years.

Those responses gave Rhode Island a score of minus-43 in Gallup’s Economic Confidence Index for 2011, tied for third-lowest in the nation. That’s an improvement from the state’s rock-bottom score of minus-63 back in 2008, but worse than its scores of minus-39 and minus-41 in 2010 and 2009, respectively.

“Gallup Daily tracking each day asks Americans to assess the current state of the U.S. economy and to say whether the economy is getting better or worse,” the firm said. “The responses to these two questions are combined into Gallup’s Economic Confidence Index.” Negative scores mean more pessimism.

The most economically confident place by far was Washington, D.C., which registered a minus-4, a full 22 points ahead of second-ranked North Dakota despite the latter’s much lower unemployment rate.

“One possibility is that the poll is wrong,” The Washington Post’s Ezra Klein suggested. “Another is that the political nature of the economic crisis leaves residents of Washington feeling more in control than residents of other states. But the truth is that I don’t have a good explanation for this result. Do you?”

Several Democrats indicated they would prefer unemployment insurance not be paid for, arguing that doing so would negate any stimulative effect of the benefits.

Offsetting jobless benefits “blunts the economic impact of this tool,” said Sen. Jack Reed (D-R.I.).

But Republicans disagree.

“I would be remiss if I did not point out that unless we find a way to pay for these programs, we will be forced to borrow even more money from places like China — creating an even larger debt dragging our economy down,” said House Ways and Means Committee Chairman Dave Camp (R-Mich.), who also chairs the conference committee.

Rhode Island’s “underemployment” rate averaged 18.7% in the 12 months ended Sept. 30, down from 18.8% as of June 30 and 19% as of March 31, according to the U.S. Labor Department.

The underemployment rate averaged 8.8% between 2003 and 2007. It soared to a high of 19.4% in March 2010, then fell by less than a percentage point in the year and a half that followed:

The underemployment rate - officially called “U-6,” for its data classification name - counts not only those unemployed workers who are still looking for a job, as the official rate does, but also those who are only working part-time because they cannot find a full-time job.

For comparison’s sake, Rhode Island’s official unemployment rate averaged 10.9% in the 12 months ended Sept. 30, nearly eight points below the underemployment rate.

The U-6 measure is not released monthly, as the standard unemployment rate is, but rather as a 12-month moving average each quarter. (It was only done annually before 2009, which is why the chart above looks the way it does.)

• Related: RI jobless rate rises to 10.8%, but economist questions data (Jan. 20)