Rhode Island in the Great Recession: Factors contributing to its sharp downturn and slow recovery

This paper seeks to discover why Rhode Island experienced a more severe recession than any other New England state and why the state continues to lag the region in some measures of labor market health. We find that two key factors can explain the state's last-place rank in the region for employment growth between 2008 and 2009, a time when the bulk of job losses occurred both nationally and regionally: (1) the industrial composition of the state's manufacturing sector prior to the recession, which left it vulnerable to particularly steep labor demand shocks and (2) the severity of the state's prior-year house price declines. We also find that Providence as a metropolitan area or NECTA (New England City and Town Area) had the most severe recession among a 10-NECTA comparison group, lending robustness to the state-level comparisons. Concerning the economic recovery, we observe that employment remains farther below its pre-recession peak in Rhode Island than in any other New England state because it fell farther during the recession, not because it grew more slowly than in the region's other states during the recovery.

Key findings:

• The industrial composition of the state's manufacturing sector prior to the recession left it vulnerable to particularly steep labor demand shocks.
• Rhode Island also saw steeper house price declines during the recession than any other New England state. This may help to explain why Rhode Island had larger job losses across its economy than any other New England state and may have contributed to the larger shock to its financial sector. 
• The analysis suggests that excess manufacturing job losses in Rhode Island contributed via multiplier effects to the state's greater overall job losses than were seen in the region's other states, even after controlling for the influence of house price changes.
• Analysis at the NECTA level indicates that Providence had the most severe recession among a 10-NECTA comparison group, lending robustness to the comparisons at the state level.