The December 2012 labor-market data contained a number of very favorable developments. According to the data, Rhode Island’s unemployment rate fell to 10.2 percent, its lowest value in some time.
Along with this, all four of the other labor-market indicators followed closely by Gov. Lincoln D. Chafee and emphasized by the R.I. Department of Labor and Training to gauge Rhode Island’s economic performance – resident employment, the number of unemployed, the labor force and payroll employment – also improved. December marked only the second time since 2006 all five have simultaneously improved, or so we are told.
In general, I strongly recommend against such a narrowly focused basis for gauging Rhode Island’s economic performance for a number of reasons.
First, all five of these indicators are labor-market variables. Therefore, omitted from consideration are factors such as retail sales, construction activity, consumer sentiment and a host of others.
Second, four of these labor market measures are interrelated. Specifically, not only do resident employment, the number of unemployed, the labor force and the unemployment rate come from the same survey (the household survey), their monthly values are not independent of each other. For example, when you add resident employment and the number of unemployed you get the total labor force. So, if you know any two of these you can automatically calculate the third.
Furthermore, the unemployment rate is defined as the ratio of the number of unemployed to the labor force. So, once again, if you know any two of these, you are automatically able to calculate the third. What this boils down to is that while it might appear that we are dealing with four indicators here, this group does not provide us with four separate and independent pieces of information because of the interrelationships described above.
Finally, to make things even more complicated, the DLT has been providing us with faulty monthly data on the remaining indicator, payroll employment, for almost a year now. So, payroll employment, which measures the number of jobs in Rhode Island, has been misstating total employment for quite some time. Happily for us, the “official” number has been understating the actual level over this period. So, while this indicator is generally independent of the other four, its values have been flawed and therefore misleading for quite some time.