The Mysterious Economic Collapse in the Northeast

Looking at the state-level unemployment numbers yields a significant and under-reported story. We’ve known for some time that innovations in reaching shale oil deposits in the Plains states – places like the Dakotas, Nebraska, Oklahoma and Iowa – have kept their unemployment rates low, even throughout the Great Recession.

On the other end of the scale, we’ve seen a recent trend of rising unemployment in the Northeast. Look at this chart. This includes the current unemployment rate in red, and the peak unemployment rate during the recession in blue. The state closest to its recession peak? New Jersey (Christie 2016!). Followed by New York (Cuomo 2016!). Followed by Pennsylvania and Connecticut. And Maine, Vermont and New Hampshire have seen their unemployment rates rise in recent months. Rhode Island hasn’t eroded, but they basically never had a recovery. Massachusetts, incidentally, is a major outlier here.

The St. Louis Fed finds the same uptick, reflected in the chart above. Look at that back end.

Many of these states have pretty symbiotic economies, with many people who live in one state and work in another. So what’s going on here? Bloomberg’s Evan Soltas looked into this a couple weeks ago, noting that “unemployment growth in the Northeast explains the entire 0.2 percent rise in national unemployment from March to August.”

This is a shift from the immediate aftermath of the 2009 recession. The Northeast performed relatively well in 2009 and 2010, largely as a result of a well-educated labor force, its mature economy and a smaller housing bubble in the region. At one point in late 2010, low unemployment in the Northeast kept the national unemployment rate 0.3 percentage points lower than it would have otherwise been […]

The Northeast’s particular mix of sectors could be hurting it. The government sector, a large part of these economies, is pulling back sharply in New Jersey, Pennsylvania and Connecticut. The financial industry, long a mainstay of the region’s economy, also continues to shrink.

But finance (which is shrinking in terms of total hires, but growing in terms of compensation for those remaining, and in some cases profits) doesn’t account for the New England states, ex-Connecticut. And government spending has shrunk basically everywhere.

I haven’t seen a legitimate explanation for this, and considering the impact on the economy as a whole, it would be good to see some resources devoted to it. I mean, there does happen to be more than one large daily newspaper with lots of resources with offices in the Northeast, right? As well as a number of members of the financial press? Maybe if they got off Wall Street and looked at the rest of the region, they would have something interesting to report.

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