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This new study by economists Erica Groshen, Simon Potter, and Rebecca Sela concludes that New York State’s most recent economic downturn was more severe and persistent than the national recession in part because New York State experienced considerably greater structural change in its labor market than the nation as a whole. November 2001 marked the end of economic decline and the beginning of expansion for the United States; data specific to New York State suggest that New York’s economy did not rebound until August 2003.
Groshen, Potter, and Sela find that receptiveness to innovative business in New York State has likely heightened the restructuring of the job market. The state ranks high in patented inventions per capita, and several indexes of creativity and innovation that pertain both to the state and to metropolitan areas are similarly high. New and creative start-up business have been attracted to areas, generating new jobs. However, these industries often shed jobs as the industries mature, moving them to relatively lower cost locations.
New York State has undergone relatively greater structural change in three of the four past recessions, with downturns in the 1970s, 1990s, and in this most recent recession outlasting the corresponding national downturns. The authors’ analysis of data shows this trend increased from the 1970s through the 1990s, by which time 94 percent of all jobs lost were in industries undergoing structural change.
In this most recent recession, 67 percent of all New York State jobs were in industries undergoing structural change. This decline in the effect of structural change, the authors find, may have been heightened by the effects of September 11, which accounted for the greater role played by cyclical job loss in this most recent recession relative to the early 1990s. In this most recent recession, industries such as retail trade, leisure and hospitality, and other services were particularly subject to purely temporary job losses that were reversed once the recovery began; these industries were also particularly affected by September 11.
Structural change is defined as permanent reallocation of workers across industries and occupations, and has resulted in a decline in manufacturing jobs and a rise in services jobs–fundamental shifts taking place in both New York and the nation. Cyclical change results in temporary job losses, in which laid-off workers can be called back to their old firms or find comparable work elsewhere.
Erica Groshen is an assistant vice president in the Research and Market Analysis Group’s Domestic Research Function, Simon Potter a research officer in the Business Conditions Function, and Rebecca Sela an assistant economist in the Domestic Research Function.