Friday, December 7, 2012

NJ Took a Bigger Hit in 2008 than NY

Before the meltdown of 2008, New Jersey (blue diamonds) 
enjoyed lower unemployment rates than New York State
(red squares). After 2008, NJ rates rose above NY.
(Chart and estimates for 2012 by City Economist, based
on 10 months of 2012 data.) Source: BLS.
The freezeup of the global financial system, which reached subzero levels in September 2008, affected all Americans. But it affected some more than others. New Jersey seems to have taken a bigger hit than New York State.

During the go-go years in the mid-2000s, the unemployment rate in New Jersey remained below that of New York State. New Jersey residents who worked in New York City brought their paychecks back to their local communities and supported employment where they lived.

In the four years since 2008, the situation reversed itself and the unemployment rate in New Jersey exceeded that of New York State.

In both states, the unemployment rate between 2007 and 2009 is striking - from 4-5 percent unemployment to 8-9 percent - a doubling in two years!

Why was New York State less affected? Here are three theories that might explain why New Jersey suffered more from the 2008 hit:

1. The law of large(r) numbers - If you record the results (head or tail) for each coin toss, the more the more the number of tosses the closer one gets to the long-run probability of 50 heads for every 100 tosses. (The more you gamble, the more certain it is that the casino will win.) New York has more people and workers than New Jersey, so its unemployment-rate estimate based on a small sample of households will be more stable. Its unemployment rate will over time be less variable than New Jersey's. But the New Jersey unemployment rate is not just more variable - it is consistently lower than New York's before 2008 and higher after 2008.

2. Allen's rule from 1847 - When the climate is colder, animal extensions evolve into shorter ones than in warmer climates. The arctic-circle rabbit has shorter ears than the warm-climate jackrabbit. There are no flamingos in the arctic circle. Similarly, in hard times (e.g., frozen financial markets), companies close branches to save money. Since the engines of New Jersey's economy are in New York City and Philadelphia, the urban centers

3. Bergmann's rule, also from the 19th century - The mass of a species tends to be heavier in colder-weather regions, to conserve energy. A penguin is bigger than a humming bird, a polar bear is heavier than tropical bears (the sloth bear, spectacled bear and sun bear), which are not found in cold-climate zones. So the big cities - New York and Philadelphia - may have kept their strength by pulling in workers from back-office and branch posts outside the city.