ZERO.ZERO % Sale Tax Too Much for the Imagination of the Political Class

Imagine tens of thousands more people employed in Rhode Island.

Imagine new retail and construction jobs to support an economic growth spurt.

Based on a 2012 policy recommendation by our Center, some members in our General Assembly actually think we can make these things happen in our state.

Yet, as we close out the year with reports of even more dismal national rankings for our Ocean State, the Political Class is looking to kill this policy idea from our Center that some believe could make those imaginations happen in 2013; an idea that is clearly ‘out of the box’; but sadly, an idea that those who defend the status quo cannot even begin to comprehend.

Rhode Island desperately needs a number of game-changing policy reforms to gain a competitive advantage over our neighboring states and to provide much needed economic opportunities for workers; the elimination or phase-out of the state sales tax is a policy reform idea that offers the most immediate jobs dividend.

In June our Center published a report detailing the positive jobs and economic benefits Rhode Island would realize if we were to reduce or eliminate the state sales tax. Just this week, a front-page story in the Providence Journal discussed how some members in the House are considering this strategy, making reference to our Center’s report.

But – per a recent ProJo article about related legislation – to hear members of the Political Class reject this notion out-of-hand is an indictment of their lack of leadership and imagination. How can we afford not to have this important debate?

Our Center produces credible information and it’s unfortunate that we have to find a way around so many with closed minds. Our Center is an idea factory … and one such idea was put forth in our Zero.Zero report; a well-researched study that projected the benefits of sales tax reductions: A report that reviewed how this policy has been successful in other states; a policy that is consistent with a free-market economic philosophy. Yet the Political Class still cannot comprehend … and they choose to stick their collective heads in the sand and say “it isn’t so”.

The problem is that they are fixated on “balancing the budget” … a budget that has clearly failed our state. Balancing the budget – especially this budget – is not an economic policy and it should not be the Holy Grail for our public officials … making our state more competitive and creating jobs should be the goal!

The budget, then, should be crafted to support that more worthy goal; a budget that will likely be significantly smaller so that we can reduce taxes on citizens and businesses in order to create a positive business climate … scandalous!

But those without imagination; those who are not prepared to lead; and those who are afraid of upsetting the apple-cart find it all too easy to hide behind the limitations of our existing job-killing budget, to impose a few new taxes on someone else to raise a few more dollars, and then wash their hands and say “we did good”.

This failure of leadership and this culture of failure is what we voters have continually put in place over the recent decades … so that now, any bold, new idea is systematically rejected by the establishment.

This will happen with our innovative sales tax idea unless you, and thousands of citizens like you, are willing to stand-up, speak-out and demand that our state rigorously debate the pros and cons of a policy concept that could reduce our state’s chronically high unemployment rate by about one-third!

Forward this email, make your calls, talk to your family and friends … but do not complain about our state if you are not willing to stand up to the Political Class. They will listen if you and I speak loud and often enough!

In 2013, I look forward to working with anyone with an open mind to advance the bold policy reforms that our state so badly needs.

by Mike Stenhouse, CEO



RI Public and Private Sector Compensation Comparison

Related Media: Report Finds RI Government Workers Out-Earn Private Sector (GoLocalProv), Guest opinion: Public employees would benefit from pro-growth policies (The Herald News), Tie the Public to the Private  (GoLocalProv), Mike Stenhouse on the Helen Glover show (920 WHJJ);  RI Owes $81 Million in Unused Sick, Vacation Time (GoLocalProv)

Download: Executive summary; full report with methodology (PDF)

Executive Summary

State and local government workers enjoy significantly higher compensation levels than their private sector counterparts, according to data compiled for Rhode Island as part of a national study conducted by economists William Even, of Miami University, and David Macpherson, of Trinity University.

Even and Macpherson apply the most complete controls for such variables as education, experience, and broad job category and the most accurate accounting of benefits to date. They find that state and local government workers across the country receive a “premium” above their private-sector neighbors, but Rhode Island amplifies the difference:

  • Rhode Island: 26.5% higher total compensation
  • New England: 18.8% higher total compensation
  • United States: 14.9% higher total compensation

Furthermore, a preliminary review of the effects of Rhode Island’s pension reform suggests that the changes to their retirement benefits did not appreciably reduce government workers’ advantage, only reducing the premium for government work to 26.24%.

Looking at base pay alone shows that job security and better benefits in government do not correspond with lower salaries, at least in Rhode Island and New England, where state and local workers receive:

  • Rhode Island: 10.4% higher base pay
  • New England: 2.8% higher base pay
  • United States: 1.5% lower base pay

Averaging all jobs at every level, total public-sector pay and benefits in Rhode Island are competitive with Massachusetts and Connecticut, but private-sector workers earn nearly 25% less than their peers across state borders. Consequently, comparing averages within Rhode Island yields the following results:

  • Total compensation: 20% higher for government workers
  • Pay (base salary): 4% higher for government workers
  • Benefits: 58% higher for government workers
  • Hours worked: 5% less for government workers
  • Value of paid time off: 5% higher for government workers

Compared with the New England region, Rhode Island’s government employees are unique in having a higher average base salary than the private sector as well as a higher value for paid time off. They also enjoy a total compensation premium well above the regional average, even as they work the fewest total hours.

If there is to be any hope of keeping current compensation levels and benefit promises to government workers, the state must experience an immediate boom in the private-sector economy. Without rapid economic growth and a boost to their prosperity, taxpayers’ tolerance and capacity to pay for government beyond their means will continue to wane.

Data Analysis

Overall Averages

Rhode Island’s state and local government employees receive higher compensation than their private-sector neighbors by every measure, according a study comparing public-sector and private-sector compensation that the RI Center for Freedom & Prosperity requested from economists William Even, of Miami University, and David Macpherson, of Trinity University.

Chart 1 shows the average real earnings and benefits (in 2010 dollars) for state and local workers versus private-sector Rhode Islanders. Benefits take into account pensions, health insurance (including post-employment/retiree), other insurance, legally required benefits, like Social Security payments, and paid time off. The total compensation for the average public-sector employee in Rhode Island was $100,217, which was more than 20% higher than the private-sector average of $83,419.

Rhode Island Average Pay and Benefits for Public and Private Sector Workers, 2010

Rhode Island is inarguably in a high-cost, public-labor-friendly region, but even so, it is unique within New England. Chart 2 shows that Rhode Island is the only New England state in which the average wage earnings (base salary) of all state and local workers, on its own, was greater than that for all private-sector workers.

The most conspicuous reason for Rhode Island’s poor showing, here, is the huge gap between its economy and that of the two states that envelop it. While the Ocean State’s public sector is competitive with Connecticut and Massachusetts (with earnings only $4,294, or 6.6%, below the region-leading Bay State), its private sector has a $15,398 (23.3%) deficit.

New England Average Pay for Public and Private Sector Workers by State, 2010

Even when benefits are factored in, the private sectors in Massachusetts and Connecticut outstrip government employees. In contrast, Table 1 shows that Rhode Island adds a relatively large amount of compensation via benefits in its public sector and a relatively low amount in its private sector.

Another significant perk to working in Rhode Island’s public sector is time off. According to the data collected by Even and Macpherson, Rhode Island is the only New England state in which the value of the public sector’s paid time off ($7,208) is greater than the private sector’s ($6,857). (These numbers are included in the total for benefits.)

And while government workers in all New England states put in fewer hours than their private-sector neighbors, Rhode Island’s public employees put in the fewest. Moreover, only in Vermont is the gap between the sectors larger. (Note: Annual hours are calculated from weekly-hour responses on employee surveys.

Variable-Controlled Premiums

A common objection to such comparisons of average pay is that the types of jobs available within the public sector lend themselves to more-highly educated employees. Therefore, the argument goes, it is entirely appropriate for them to make more than the average of all private-sector jobs, because they skew toward the higher end of the workforce.

To investigate this explanation, Even and Macpherson performed a regression analysis for Rhode Island, the New England Census division, and the United States in order to compare similarly situated employees. Chart 3 shows a summary of the results.

The percentage shown is the premium for working in the public sector — that is, the percentage advantage in compensation from working in the public sector, taking into account employee characteristics (such as education and experience) as well as broad job category (such as management versus office and administrative support). (See Table 2.)

On salary alone, state and local employees enjoy a 10.4% premium in Rhode Island, even when controlling for other variables like education, experience, and broad job category. For New England overall, the premium is 2.8%. Nationwide, the public-sector actually has a salary penalty of 1.5% below the private sector.

Rhode Island, New England, and U.S. Premium for State and Local Public Workers in Pay and Total Compensation, 2010

Adding in the total value of benefits (before pension reform), Rhode Island’s state and local workers receive a premium of 26.5% over their similarly situated private-sector counterparts. That compares with 18.8% for New England as a whole and 14.9% nationwide.

A significant consideration that Even and Macpherson were unable to quantify due to a lack of data is job security. Given higher rates of unionization and the ability to affect their employers through political activities, government workers are generally understood to face less volatility than do private-sector employees. In theory, economists could apply a monetary value to that intangible benefit, but such an investigation would be beyond the scope of this study.


Pensions & Pension Reform

One important adjustment that Even and Macpherson have made to the raw compensation data is to determine the current value of pension benefits using a 4% discount rate. In a defined-benefit system, actuaries value the guaranteed level of income that employees will receive during retirement by assuming that investments will produce a certain return.

Rhode Island currently assumes a 7.5% return. Prior to the adjustment that spurred the 2011 pension reform at the state level, the assumption was 8.25%. Because this study uses data from 2010, that is the starting point for this data. By comparison, the average private-sector assumption is 6%.

In all cases, therefore, Even and Macpherson had to mark up benefit values to account for the likelihood that investment profits will fall short of predictions. It may seem counterintuitive that a benefit is worth more when invested money receives less profit. However, in the case of guaranteed pensions, the benefit is defined in the future, not the present.

Therefore, lower profits from investments would require greater payments by the employer, making the benefit of greater value to the employee now. In effect, the employer is promising a greater return to the worker than he or she would be able to achieve by investing on his or her own.

Because pensions make up 10-20% of the typical government employee’s total compensation, compared with 4-6% in the private sector, large reforms can greatly affect the premium that public-sector workers receive over the private market-place. For this study to be complete, therefore, some accounting of the effect of the Ocean State’s pension reform on the value of state employees’ benefit packages had to be included.

However, the imposing complexity of pension calculations is such that an accurate estimate of the reform’s effects would be well beyond Even and Macpherson’s scope. In particular, during the transition from the defined benefits pension to the newly developed hybrid plan, each individual employee’s benefit will be different, and results vary from job to job and across state and local governments. It will be a matter of years before accurate data is available.

Consequently, the public-sector premium given above can be considered the outcome if the lawsuit currently pending on behalf of the relevant labor unions succeeds in overturning the reform. For some sense of the result if the state prevails in its defense of the reform, the Center for Freedom & Prosperity asked Even and Macpherson to provide a rough calculation.

It’s important to note, here, that the pension data throughout this study assumes that all municipal employees are receiving the same weighted average contribution as those in the state’s two largest plans — state workers and teachers — with and without 2011’s reform.

Be that as it may, the effect of the reform on this study was relatively minor. The guaranteed payments provided through the defined-benefit portion of the state’s new hybrid pension system have gone down. But the state has increased the percentage of payroll that it must contribute each year, to make up for the 5% of their pay that employees are putting toward their defined-contribution plans. The state has added a 1%-of-payroll contribution to those plans, as well.

Consequently, the annual value of government employees’ pension benefit has only decreased from $10,692 to an estimated $10,476. In terms of the “premium” that state and local workers receive over similarly situated private-sector Rhode Islanders, the percentage advantage has decreased from 26.49% to 26.24%.

Policy Analysis

Living Beyond Our Means

When a family comes to a decision about purchasing any product or service, it doesn’t merely accept the seller’s sense of what’s reasonable. In addition to the market rate, consumers must take into account the quality of the thing they’re buying as well as their own ability to afford it.

With deteriorating infrastructure, doubts about the quality of government services, and the high-profile specter of unfunded municipal and state retirement liabilities looming over the state during this current period of economic stagnation, the compensation of public-sector employees has become a subject of heated debate about fairness and affordability.

Rhode Island is the only state in New England in which public employees have higher base salaries than the private sector. At the same time, state and local workers in the Ocean State work the fewest hours in the region. When benefits are factored in, Rhode Island has the highest premium for public-sector workers over private-sector workers, even if pension reform survives the lawsuit that unions have filed to overthrow it.

Meanwhile, the state’s economy is reeling, with arguably the worst employment picture in the United States, certainly the region. With dwindling taxable incomes and general economic activity, the state and its cities and towns will not long be able to continue to squeeze more revenue from a population that is losing ground economically and seeing many of its productive residents and college graduates flee to states with healthier economies.

Adjustments around the edges that do not take on the significant public policy issues we face will not be sufficient to turn the state around. Without rapid economic growth and a boost to their prosperity, taxpayers’ tolerance and capacity to pay for government beyond their means will continue to wane. Painful struggles between powerful insiders and the average citizen will worsen. Even more taxpayers may decide that the battle is not worth the benefits of living within the Ocean State’s borders.

Economic Growth Benefits Public and Private Sectors

With all of the emphasis on improving economic development in Rhode Island, there have been two conspicuous omissions.

The first is the need for a complete change in the way that state and local governments treat taxpayers and businesses — as a matter of regulation, as a matter of spending, and as a matter of taxation.

The second, as emphasized in the data revealed in this study, is the fact that government workers should be out in front of the crowd advocating for change — not for tax-the-rich schemes that will never produce sufficient revenue, but for precisely the policies founded in economic liberty that will close the gap between private-sector Rhode Island’s earnings and those of its nearest neighbors.

If there is to be any hope of keeping current compensation levels and benefit promises to government workers, the state must experience an immediate boom in the private-sector economy.

Even the dramatic pension reform that sent unions to their lawyers and made state Treasurer Gina Raimondo a national policy star barely nudged Rhode Island’s public sector toward the national ratio of public-to-private workers. It hardly even brought the tiny Ocean State nearer to the average for the union-stronghold region of New England.

While additional compensation cuts and even deeper benefit reforms will be necessary in the public sector, the more significant factor in the public-private imbalance, locally, comes from the substandard economic conditions in which the Rhode Island taxpayer in the private sector is forced to survive. That is where dramatic improvement is most necessary, and most attainable, if public policy can be properly aligned.

Central Falls retirees discovered all too painfully that unsustainable compensation arrangements, whether salaries or benefits, are by no means guaranteed if obvious warning signs are not acted upon responsibly. The comparison of the public sector and the private sector in Rhode Island is one such sign of unsustainable compensation levels.

The people of Rhode Island depend upon government workers for the appropriate and necessary functions of government, but those workers depend upon the private sector to maintain a healthy economy and, in turn, sufficient government revenue. The top priority for employees on both sides of Rhode Island’s taxing and spending, therefore, should be reasonable reform that makes public-employee compensation sustain-able combined with the elimination of policies that restrain economic growth in the Ocean State.


Download the PDF version of this report for Even and Macpherson’s full methodology.

Opinion by CEO Stenhouse: The old approach won’t restart R.I.

As printed in the Providence Journal Op Ed section, 11/15/2012

On Nov. 10, a single page of The Journal featured two articles that tell us all we need to know about Rhode Island’s misguided approach to economic development and our dismal economy. While Rhode Islanders struggle to control their families’ financial security, our state looks to seize control, period.

The first article (“State seeks growth ideas, data analysis”) reports that Governor Chafee will use tax dollars to pay private firms for ideas, due in about 90 days, on how to focus resources in specific areas that can be coordinated across multiple state agencies.

Every part of this approach is precisely opposite of what we should be doing.

Rhode Island has a bad economy because we have one of America’s worst climates for business; and we have a poor business climate because we have too many punishing taxes and regulations enacted by our own government.

As the governor sees it, the same government that created this bad business environment now wants to be entrusted to come up with a plan to fix it — coordinated across multiple agencies.

But a redesigned Rhode Island Economic Development Corporation would not create private-sector jobs. Government is hardly the entity those in the business community would trust.

After the 38 Studios debacle, haven’t we learned that government should not be deciding which businesses or industries should receive special treatment?

When I hear “invest in specific areas,” I can only wonder what politically connected special interests will benefit. A strong business climate, one that reduces taxes and regulations for all, would benefit the entire business sector, not just a chosen few segments.

Our state wants to use federal funds to pay for good ideas about what’s wrong with our state and what to do about it. How typical: spend more taxpayer money on more government bureaucracy to waste more time, and maybe reaching conclusions we already know.

Government begets more government, and the beat goes on.

My group, the Rhode Island Center for Freedom & Prosperity, has researched and documented the major problems in the state, and we have recommended solutions that are working successfully in other states.

And we do this for free. We never accept taxpayer money. We just ask the political class to listen!

There is no need to wait 90 days. Should people who are struggling have to wait three more months for the state to begin to get a clue?

In this same Journal article, Governor Chafee was quoted as saying that we must take steps to improve the state’s economic climate. But in the second article (“R.I. could see $50-million surplus”) about what to do with a potential budget windfall, the governor contradicted his quote from the first article.

Instead of using the $50 million surplus to improve the business climate (by reducing taxes, maybe?), the governor intends to spend forward these windfall funds on next year’s budget deficit, which does nothing to improve the state’s economic climate.

Balancing a failed budget would not help grow our economy. But this is how bureaucrats think. Economic growth should be the goal, with the budget being adjusted accordingly. Any wonder why Governor Chafee recently received a “D” for his poor fiscal policy from the Cato Institute?

What both articles clearly demonstrate is that Ocean State residents can expect a government-centric, bureaucratic, budget-oriented approach toward economic development. The government approach that got us into this mess is now being promoted by our state leaders to get us out of it. The political class just doesn’t get it.

What Rhode Island needs to do is to unleash individuals and businesses by tearing down the legislative barriers that inhibit success. Let the free-enterprise system — the same system that President Obama called the greatest engine of prosperity the world has ever known — work on its own and thrive.

Unfortunately, those who defend the status quo do not want to hear it. They do not want a less-expansive government. That might lose them votes. And they will do almost anything to avoid dealing with the real public-policy issues that are at the core of our state’s problems.

The politicians provide lip service to make it look like they’re trying to do something. And they hope that we’ll all buy it.

I don’t buy it. Do you?

Mike Stenhouse is chief executive of the Rhode Island Center for Freedom & Prosperity, a conservative think tank.

“Get Government Out of the Way”: a free-market solution for the RI economy

Related Links: Oct 11 Press Conference Event & CEO Stenhouse Extended Remarks, Prosperity Agenda for RI,
Podcast: ALEC's Jonathan Williams discusses with Dan Yorke on 630WPRO
Video: Mike Stenhouse remarks at Press Conference

Adherence to  Free-Enterprise Principles can Revive the Ocean State’s Economy

The state of Rhode Island requires significant public policy reform to unleash a private-sector economic engine fueled by the creativity, investment, and energy of businesses and individuals. What is not needed are more of the same subjective and politicized tactics that benefit chosen business sectors, favored political constituencies, limited geographical regions, or specific business ventures.

Rhode Island does not have to reinvent the wheel. Three proven steps are required to embark on a new path to improve Rhode Island’s economic fortunes:

1. Embrace the free-enterprise system as the means to restore prosperity

2. Follow and learn from successful economic policies implemented in other states

3. Design and implement public policy reforms reflective of the above, applied evenly and universally

In seeking to provide assistance to too many people, in caving to special-interest-group concerns, and by doling out special favors to the well connected, the state of Rhode Island has created dozens upon dozens of legislative barriers to success. These barriers have restricted economic and individual opportunities and incentives, resulting in the worst business climate in the country, loss of out-migrating taxpayers, a slew of Fs and Ds on the state’s Competitiveness Report Card, and the most dismal jobs outlook of any state in the nation. Prosperity can only be achieved if those barriers are systematically torn down and we move decisively on a new economic path.

That proven economic path is the free-enterprise system. Even President Obama calls it the ‘genius of America’, yet Rhode Island has sharply departed from its principles. Free-market concepts must be re-embraced and recognized as the economic engine that has proven to be the most effective machine ever devised to raise people out of economic misery and into a higher standard of living. This means our state must enact policies that lower taxes, reduce regulations, and cut spending. The benefit will be increased economic activity, more jobs, and positive state-to-state net migration. In contrast, government redistribution polices have failed the very citizens they intend to help.

Before we undertake the task of implementing specific policy reforms that dramatically roll back laws that hinder economic growth, a long-term commitment to economic freedom must be established. Removing certain barriers while erecting others will get us nowhere. Adherence to free-market principles is required. But, as a state, we must also be willing to work through our political and cultural differences.

Contrary to our popular notion of polarized politics, the free-enterprise system is not a political philosophy. It is a well-delineated economic philosophy predicated on a culture of success. As a people, we must overcome our disdain of the successful and resist the temptation for government to serve as referee in tilting calls to favor groups it perceives to be in need. This is not the proper role of our uniquely American form of government; it interferes with the efficient mechanics of the free-market system and it provides disincentives to achieve and prosper.

We must accept that a paycheck is better than a welfare check and recognize that a growing economy that provides job opportunities is far more desirable than a stagnant economy that breeds dependency on government services and impedes upward mobility. We cannot have it both ways. We must also understand that it is a morally preferable that free people should strive to be self-sufficient and maintain the rewards of their own hard work. Government policies should create incentives for the pursuit of individual happiness, not hinder that pursuit.

The main strategy to unleash Rhode Island’s economic revival should be to learn from and follow the successful policy reforms enacted in other states; namely, creating an attractive business climate, with free competition, so that all laborers, entrepreneurs, and businesses can have more opportunities to work, to innovate, to grow, and to prosper.

Our RI Center for Freedom & Prosperity has researched and developed an initial set of policy reforms that are consistent with these goals – our Prosperity Agenda for Rhode Island: a set of taxpayer-friendly, worker-friendly, and business-friendly reforms that reduce burdens on employers and provide more freedom of choice for individuals; proven reforms, successfully implemented in other states, that will start to move the Ocean State down a new path towards economic growth.


Cranston Herald: Study shows free-market enterprise is path to prosperity in RI

Policy Reform: Enact Collective Bargaining Reforms

Up to $250 million per year can be saved in RI



Collective Bargaining Costs

All workers deserve  fair compensation. However, it is not fair that taxpayers, struggling in a poor state economy, must also be forced to pay for excessively high compensation packages for unionized government workers. With reforms to collective bargaining, undue union influence and election cronyism can be reduced.

The ever-increasing total cost of employment for unionized government labor — annual  compensation plus benefits — is a cost item we simply can no longer afford.

It’s time to face the facts: public-sector unions drain precious resources away from Rhode Island’s sick, elderly, youth, and poor.

See “Collective Bargaining Reform” policy brief …






Policy Reform: Require Accuracy In Pension Accounting


Municipalities are understating the true cost of unfunded pension liabilities

Government employees need to properly plan for their retirements. Municipal officials need to have predictable budgets from which to provide quality education and city services. Taxpayers need to know that budget shortfalls will not raise their property taxes. Before local pension funding formulas can be effectively developed, it is essential that Accuracy in Pension Accounting be required of all municipalities.

The assumed rate of return that most government entities have traditionally used to estimate pension liabilities has been widely discredited as overly optimistic. A more conservative market rate, similar to what is used in the private sector, is generally seen as a more accurate measurement.

When a private company, like Enron, used improper accounting practices, the wrong-doers ended up in jail. When our local governments understate pension liabilities, retirement plans are put at risk, our schools suffer, local services are cut, and taxpayers pay more from their pockets.

At an October 2012 pension forum state and local officials openly admitted that it would be politically inconvenient to disclose the true scope of the problem to their constituencies.

This can all change with accurate accounting.

Read more about our “Truth in Pension Accounting” movement here … 


Policy Reform: Reduce State Minimum Wage to Federal Level

Teen Employment and Weekly Hours worked are steadily dropping in RI


Minimum wage increases helping to sink teen employment in the Ocean State

As teens transition into adulthood and self-reliance, the likelihood of developing crucial career skills, of building their personal networks and résumés, and of earning valuable spending money is diminishing in Rhode Island. Moreover, a higher minimum wage is drag on jobs development for everyone looking for entry-level work.

See our “Teen Employment” policy brief here … 



Policy Reform: Enact Changes to Civil Justice Laws

Legal Sharks in the Ocean State

Do state laws attract shark activity in the Ocean State?

An important part of creating a better and less risky business climate in Rhode Island is to lessen the threat of litigation for legitimate business practices. Doing so would lower the cost of liability insurance for most businesses, reduce consumer costs for many products and services, and free up businesses to become more creative and innovative in developing new concepts.

Specific Recommendations:

 A) Medical malpractice and product liability reform: Enact laws that limit the amount of non-economic and punitive damages that judges and juries may award to injured people (policy brief TBD).

 B) Implement “criminal intent” provision: Enact a law that protects citizens against prosecution for non-criminal or non-intentional activities … as dozens of other states have done.

See ‘Criminal Intent’ policy brief here …







Employment Consequences of Kid-Brother Economics

Commentary: Rhode Island’s Follower Plan

Throughout the Great Recession, Rhode Island’s leadership has had the air of helpless wisdom about the predicament of their state’s economy.

“We’re traditionally first into a recession and last out,” Governor Lincoln Chafee (Ind.) told David Klepper of the Associated Press, in December 2011. A few weeks later, RI House Speaker Gordon Fox, arguably the most powerful politician in the state, told WPRI’s Newsmaker interviewers the same thing, almost verbatim.

Nobody in office would say so directly, but general acceptance of that trend has been evident in the priorities and areas of inaction in both the executive and the legislative branches. And when the economic plan is simply to wait for a national recovery to pull the state forward — call it “kid-brother economics” — all that remains is to gloss over the numbers in the meantime.

The Policy Brief

Click here for a PDF of the Policy Brief of RI’s employment trends or read below

See the Media Release at the bottom of this post

The Ocean State’s Unique Status

Rhode Island is suffering through an employment crisis and a jobs outlook more severe than any other state in the country. Residents, hoping to assume more control over their families’ future through some sense of job and wage security, unfortunately, face deteriorating prospects.

No other state in the nation ranks as poorly as Rhode Island in employment when viewed across so many angles. Among all U.S. states:

  1. RI has the second highest unemployment rate in the nation and is one of only three states with unemployment above 10% (NV, RI, and CA). Of them, only RI has a smaller total labor force as compared with prerecession levels.
  2. RI’s unemployment rate would be significantly higher if workers hadn’t given up hope. With its February 2010 labor force, RI’s rate would now be 13.4%; with its January 2007 labor force, it would be 14.2%. Applying the same calculations nationwide, the bottom three would be RI, NV, and AZ in the first case and MI, RI, and IN in the second.
  3. RI is one of only two states significantly below the national norm in measuring current employment versus prerecession peak employment (MI and RI). Of these two, only RI’s trend continues to worsen.
  4. RI is one of only three states that have continued to shed employment since the national employment loss trend ended in February 2010 (RI, AZ, and NY).

When viewed from each of these perspectives, Rhode Island ranks in the bottom two in all four categories. No other state appears more than twice.

Unemployment Is Relative

When it announced the state’s employment results for July, the RI Dept. of Labor and Training (DLT) emphasized the fact that the unemployment rate has been on a slow downward trend. The state’s…

… seasonally adjusted unemployment rate for July 2012 dropped to 10.8 percent, down one-tenth of a percentage point from the June 2012 rate and six-tenths of a percentage point from the previous July. This is the third consecutive monthly decrease in the unemployment rate, and represents the lowest unemployment rate in Rhode Island since May 2009.

While Rhode Islanders are surely in the mood for whatever good news they can get, this may not fill even that modest requirement. That 10.8% does look better than June’s 10.9% and May’s 11.0%, but it still leaves Rhode Island as the runner-up in high unemployment rates, second only to Nevada.

Worse, RI is now one of only three states with unemployment above ten percent, and the others have been exhibiting better trends overall (see Chart 1). Both California and Nevada passed the Ocean State in early 2009, but as 2013 approaches, they’re on pace to drift below, as CA already has.

CA, NV, and RI Monthly Unemployment Rates, 2007-2012

The federal Bureau of Labor Statistics (BLS) which compiles employment data for the nation and the states also tracks alternate measures of unemployment. In these cases, the trends are tracked quarterly (every three months), and the number represents the average over four quarters.

The BLS collects its data through a regular Current Population Survey (CPS), which asks respondents a number of questions related to their employment situations. All of the rates shown are percentages of different totals for the “civilian labor force.”

The most common (as represented in Chart 1) is the U-3 measure, which tracks people who are not working, but who want to do so and have looked for jobs within the past four weeks. The denominator for this rate (i.e., the labor force, or 100%) is the total number of people who say they are either employed or looking for work.

Chart 2 shows trends for the U-1 unemployment rate, which traces the number of people who have been unemployed for fifteen weeks or more.

CA, NV, and RI Long-Term Unemployment Rate (15+ Weeks), Rolling Four-Quarter Average, 4Q03-2Q12

Broadening the length of time that residents have been unemployed is one way to adjust the data. Broadening the definition of “unemployed” is another. The BLS digs deeper with survey respondents who are not looking for work by asking when they last did so and why they stopped.

Those who have looked for work within the past year, but stopped no less than four weeks before the survey because they had given up hope of ever finding jobs, are “discouraged.” Broader still is the category for “marginally attached workers,” who followed the same pattern as discouraged workers, but without regard to their reasons for stopping their searches (U-5).

Unemployment trends by this measure are shown in Chart 3. The denominator for the percentage is the labor force defined above plus all marginally attached workers. In this case, Rhode Island still — just barely — has the third worst rate.

CA, NV, and RI Unemployment Rate, Including Marginally Attached Workers, Rolling Four-Quarter Average, 4Q03-2Q12

The broadest measure of unemployment that the BLS tracks is the U-6, which adds people who are working part time because they cannot find full-time jobs. Comparing Chart 4 with the first three suggests that, when Rhode Islanders find work, it is more likely to be full-time work, in comparison with California and Nevada.

CA, NV, and RI Unemployment Rate, Including Marginally Attached and Forced Part-Time Workers, Rolling Four-Quarter Average, 4Q03-2Q12

Still, with a current rate of 18.9%, that silver lining does not offer much comfort, especially considering that RI’s stagnation remains incontrast with improvement in the other two states.

An Even Gloomier Picture

Unfortunately, even the dispiriting picture of the unemployment rate is overly sunny for Rhode Island. The multiple parts of the unemployment rate equation actually disguise just how badly the recession has hit in the Ocean State. Chart 5 shows what Rhode Island’s unemployment rate would be if its labor force had remained the size it was in January 2007 (at the start of the recession) and in February 2010 (when employment losses receded at the national level).

RI Unemployment Rate Under Different Labor Force Scenarios, January 2006 to July 2012

An analysis of total labor force statistics — the actual number of residents working or looking for work — shows that both California and Nevada have seen substantial increases since January 2007, while Rhode Island has seen a substantial decrease. In fact, under the January 2007 labor force scenario shown in Chart 5, both California and Nevada would have unemployment rates below 8%.

In both of those other states with official unemployment currently over 10%, more people wanted to work than before the recession, driving up the unemployment rate. Indeed, the big jump that Nevada experienced in July 2012 (refer back to Chart 1) was amplified by the fact that nearly 2,000 more people were looking for work.

In contrast, so many people stopped looking for work in RI that the unemployment rate could have stayed low even if the economy didn’t create a single job. Employment fell so rapidly that people couldn’t quit the job market fast enough to com-pensate. The two western states had the much more positive task of creating new jobs for new workers.

An Employment Spiral

The fact that the unemployment rate can be misleading, in this way, raises the question of what other measures might give a more accurate picture of the state’s employment trends. One excellent indicator is the number of people employed.

The same BLS survey estimates the number of residents of each state who say that they are working. Chart 6 shows the July 2012 employment number in all fifty states as a percentage of each state’s peak before the housing bust and financial crisis turned its employment growth negative.

United States July 2012 Employment Percentage of Pre-Crisis Peak by State

Eight states have already surpassed their peaks, and most of the rest are within five percentage points, including California and Nevada. At the bottom of the chart are two outliers that are still around ten percentage points away from their prior level of employment: Michigan and Rhode Island.

Another important question is whether a state’s employment picture is improving. RI’s is not.

Just as Rhode Island has the second worst unemployment rate, it also has the second worst deficit from its peak employment. And just as Nevada is gaining ground on Rhode Island by the first measure, Michigan is gaining ground by the second. That realization, in turn, leads to a final observation of the Ocean State’s condition.

Two years of disappearing jobs in the United States came to an end in February 2010, after which both the number of jobs available and the number of people working began to increase (albeit, slowly and unsteadily). Since then, only three states have continued to shed employment. As Chart 7 shows, not only is Rhode Island once again on that short, undesirable list, but it is dead last… by quite a bit.

United States Employment Growth by State, February 2010 to July 2012

One Discrepancy

Given the negative trends apparent in this data, it’s important to explain that the employment/unemployment measure is different from the jobs numbers that Governor Lincoln Chafee recently authorized the DLT to release. This brief addresses the number of Rhode Islanders who say that they are employed; the DLT data is based on surveys and tax information from employers regarding the number of employees that they have.

In the latter case, local analysts dispute the BLS’s employer-based statistics, which find a decrease in jobs over the past year. The RI DLT claims an increase of 4,800 jobs from March 2011 to March 2012, while the U.S. BLS claims a decrease of 2,200 over that period.

One potential explanation for at least some of that discrepancy has to do with seasonality. The BLS updates its official employer-based jobs count annually, benchmarking to tax forms. Small-scale surveys suffice for real-time trends.

The RI DLT has broken with this methodology mainly by reviewing unemployment insurance tax data as it becomes available and assuming that the prior year’s seasonal adjustments still apply. Those numbers may require a significant adjustment when the final data is collected if any months were notably different than the same month in the past.

Whichever employer-based jobs number is correct, the data in these seven charts need not be affected. If, for example, people who were already working took additional jobs, the official job growth would have less effect on employment.

Probably more significant is the possibility that Rhode Island employers hired people who do not live in the Ocean State, or that people working in Rhode Island emigrated across the border. In those cases, the number of jobs could go up even as the state’s employment goes down.

An analysis from the Center’s news division, the Ocean State Current, found that the number of people living in the counties right over the border in Connecticut and Massachusetts who are employed increased by almost 11,000 from May 2011 to May 2012, more than twice RI’s new jobs.

Summary Table
Percentage National Rank
Chart 1, U-3 unemployment, July 2012


10.7 48


12.0 50

Rhode Island

10.8 49
Chart 2, U-1 unemployment 15+ weeks, 2Q12


6.7 48


7.9 50

Rhode Island

7.0 49
Chart 3, U-5 unemployment incl. marginally attached, 2Q12


13.0 49


14.9 50

Rhode Island

12.7 48
Chart 4, U-6 unemployment incl. marginally attached and involuntary part time, 2Q12


20.3 49


22.1 50

Rhode Island

18.9 48
Chart 5, unemployment with January 2007 labor force, July 2012


10.7 48


16.4 50

Rhode Island

14.2 49
Chart 5, unemployment with February 2010 labor force, July 2012


11.8 48


12.9 49

Rhode Island

13.4 50
Chart 6, distance from prerecession employment peak, July 2012


-6.7 48


-10.5 50

Rhode Island

-9.8 49
Chart 7, employment growth since February 2010, July 2012


-1.1 49

New York

-0.7 48

Rhode Island

-1.7 50


Time to Take Responsibility

Overall, Rhode Island’s picture is what one would expect when the officials who control the overly burdensome threads of government place the status quo above progress. The state’s economy has been stagnant and drifting downwards, as Rhode Islanders for whom stagnation is not good enough make other plans.

The kid brother who never takes responsibility or initiative for himself will tend to trail behind, much as Gov. Chafee and Speaker Fox passively describe their state’s economy. That should not be accepted; too many Rhode Islanders are being harmed and finding their aspirations put on hold.


Media Release

FOR IMMEDIATE RELEASE:  September 4, 2012

RI Uniquely Suffers Bleak Employment Outlook

Governor Chafee Should Consider Facts Before Speaking to National Audience from Charlotte

As Rhode Island Governor Chafee prepares to speak to a national audience from the DNC Convention one day after Labor Day, he should consider that his state suffers from the bleakest labor outlook of any state in the nation, according to a report issued today by the RI Center for Freedom & Prosperity. The state-based think tank also criticized the governor and other state leaders for their inaction and announced plans to release its own set of recommended policy reforms.

The report shows that Rhode Island is alone in ranking in the bottom two states in the nation with regard to its unemployment rate, its continuing workforce and employment degradation, and its overall employment loss since both the recession and the recovery. The state is unique in its poor standing across all of these important job measurement categories.

“As we have been saying for months, absolutely nothing is being done to improve our alarming jobs slump,” said Mike Stenhouse, CEO for the Center. “Why are we not having a special session of the General Assembly this fall?” he inquired.

“We’re traditionally first into a recession and last out,” Gov. Chafee told David Klepper of the Associated press, in December 2011.1 A few weeks later, RI House Speaker Gordon Fox, arguably the most powerful politician in the state, told WPRI’s Newsmaker interviewers the same thing, almost verbatim. This general attitude has translated into inaction in both the executive and the legislative branches. “It is not a viable economic plan to simply to wait for a national recovery to pull the state forward,” added Stenhouse.

Citing today’s report as irrefutable evidence of the need for immediate and bold reforms to provide Ocean State residents with renewed opportunities and long-term financial security for their families, the RI Center for Freedom & Prosperity also announced that it will offer its own solutions to address one of the biggest challenges in the state’s history.

“We have the second highest unemployment rate in the nation… and our General Assembly does nothing. We are one of only three states that has lost employment since February 2010… and this administration does nothing. We have the worst business climate in the nation… and our business and political leaders do nothing! Our jobs crisis has resulted in a decade-long loss of taxpayers to other states… and the political class does nothing,” continued Stenhouse. “The inaction of our do-nothing politicians has cost our state jobs because of their politics-as-usual approach. Our Center does not cave to special interests and we are not afraid to act. We will provide a positive vision for our state, along with a well-researched set of policy reforms to solve our dismal jobs problem.”

In filling part of the leadership void in the state, the Center plans to publish tomorrow its Prosperity Agenda for Rhode Island, which will recommend a dozen significant policy reforms. “Hopefully, our Center’s employment report today and our suggested policy reforms tomorrow will spur the debate that Rhode Island must have now! We encourage voters and candidates to reject the political class’s approach of doing nothing and, instead, to raise awareness of this vital problem and openly discuss all legitimate solutions during the upcoming campaign season,” concluded Stenhouse.

The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.

Policy Reform: Reform Renewable Energy Mandates

Laws maneating that a certain portion of our energy must be derived from renewable sources actually force households and businesses to pay higher energy costs, creating another drag on our already failing state economy. These laws are based on false assumptions. The cronyism and rate-payer funding of related special-interest projects are examples of corruption that are needlessly encouraged by such laws.

Rhode Island’s energy prices are among the highest in the nation. During these difficult economic times, we must do everything we can, no matter how small, to enhance our business climate and to reduce the cost of living for everyone. To this end, renewable energy mandates must be repealed or reformed.

Further, there is a new energy reality in America, with less of the perceived green benefit that inspired these laws in the first place. Most of these mandates were ushered into law during a period when many original assumptions, which have since proven to be false, were the mainstream thinking. Almost a decade later, there is a new energy reality that we must consider.

FALSE ENERGY ASSUMPTIONS that were a basis of RI’s renewable energy mandate laws:
  • Global warming would be great danger to our Earth: Whether global warming exists or whether the contribution of human beings to climate change and the ability of tolerable behavioral changes to make a decisive difference are now in open dispute, with conflicting data recently surfacing and increasing questions about original data.
  • Fossil fuel sources would become scarce in the near future: New natural gas, shale, and crude discoveries throughout the world have debunked this concern for the foreseeable future.
  • Fossil fuels would become increasingly expensive: Coal and natural gas continue to be the least expensive sources of electricity and will continue to be the most cost-efficient sources of energy in the coming decades.
  • Renewable energy would be abundantly plentiful: The inconsistency of wind and solar sources means that additional fossil-fuel plants must often be built as a “backup” systems.
  • Renewable energy would be more cost-efficient: Renewable energy costs remain significantly higher than conventional sources, and there are few near-term expectations that this will change.
  • Renewable energy would spur a boom in green jobs: There has been no such boom; many once-promising green companies have gone out of business because of low market demand. Some European countries that invested heavily in the green revolution suffered through more job losses than gains.
  • Renewable energy is better for the environment: Maybe not. The need for backup power plants decreases environmental efficiency. Better air quality can be achieved via natural gas, which is significantly cleaner than coal.  “Energy sprawl” is a popular term among environmentalists to describe the massive amount of land or sea area required for wind or solar farms, considered eye-pollution, and the miles of transmission lines required that often cut through pristine landscapes. Further, windmills are a danger to birds and bats.


 Reform or repeal of these mandates would save money for every family and business and would no longer be a drag on our state’s economy.

Specific Recommendations:

In light of the new energy reality, our state must enact reforms that would allow utilities, and thereby consumers, to better adapt to next-generation energy technologies:

  1. Review all renewable energy mandate laws to determine their viability
  2. Repeal the most unreasonable mandates
  3. Broaden the standards in some laws to include all next-generation energy technologies including nuclear, combined cycle natural gas, geothermal, etc.
  4. Adjust the compliance schedule to provide greater flexibility through altering deadlines or percentage targets
  5. Make the program voluntary and waive all noncompliance penalties

Policy Brief by the Center to be posted in the near future …

Related Studies:

Manhattan Institute study demonstrates that Renewable Power Mandates Drives Up Electricity Prices

New survey disputes “consensus” claims about man-made climate changes