Economists Debate Connecticut’s Steep Drop in Workforce Numbers

From May 2020 to May 2021, Connecticut’s workforce — the number of people in the state working or actively looking for work — dropped by 135,000, or 7.2 percent. That’s the second-largest decrease among any of the 50 states during that time period, according to numbers from the Federal Bureau of Labor Statistics.  Of the 18 states reporting declines, the largest was in Ohio (283,000) followed by Connecticut (135,000) and Pennsylvania (97,000).

Numbers just released from the Connecticut Department of Labor estimate that the state recouped about 19,000 people to the workforce in June.

Patrick Flaherty, director of research at the Connecticut Department of Labor, said that Connecticut’s workforce had increased by 40,000 people over the last three months, “showing that people who had not been looking for work during the pandemic are out looking for jobs.” But the state still has 116,000 fewer workers in comparison to March 2020. 

According to a 2018 article published in the Federal Reserve Bank of Philadelphia’s Economic Insights, a declining workforce can translate into slower economic growth, a higher dependency ratio — meaning less workers responsible for the care of more non-workers — and higher tax rates. 

Brendan Cunningham, a professor of economics and finance at Eastern Connecticut State University, said that a shrinking workforce could make it difficult for the government to collect enough money to fund services, and that could lead to a “downward spiral” in which the quality of services drop and the attractiveness of the state would also decrease. 

But much of this would depend on who exactly is leaving the workforce, which in Connecticut is not entirely clear. 

Some economists believe that Connecticut’s particularly steep drop is connected to the state’s high elderly population, and a sign that people at or near retirement age have decided not to return to work post-COVID. 

“I think you had a lot of folks who were approaching retirement years, [in their] 50s and 60s and then the pandemic comes along and folks realize that, maybe I’ll just retire now, I have the wherewithal to do it,” said Steven Lanza, a professor of economics at the University of Connecticut. 

Lanza said that retirees might also not be ready to adapt to the changes that have taken place in the workplace over the last year, such as telecommuting or having to wear a mask in certain spaces. 

Cunningham said that part of the retirements could be linked to an agreement between the state and the state employees’ union that will eliminate certain benefits for employees who retire on or after July 1, 2022. 

But Lanza and Fred Carstensen, a professor of finance and economics at UConn, said that while state employee retirements may be adding to the drop, they don’t think those retirements alone would account for the decline in the workforce numbers. 

The drop in workforce numbers could also be associated with a larger number of people who decided during the pandemic to go back to school, or to enroll in a program to develop a new set of job skills. 

Cunningham said that women have also been leaving the workforce at a particularly high rate, mainly because of school closures and the uncertainty around childcare caused by the pandemic. According to the Federal Bureau of Labor Statistics, male participation in Connecticut’s workforce dropped from 71 percent in 2019 to 70 percent in 2020. In that same time period, female participation dropped three times as much — from 62 percent to 59 percent. 

But Carstensen, who also directs the Connecticut Center for Economic Analysis, said that this still wouldn’t explain Connecticut’s divergence from other states, given that the pandemic shuttered schools and daycare centers across the U.S. 

Between May 2020 and May 2021, 32 states instead reported overall workforce growth.

Lanza said that these differences could be related to a divergence of public attitudes toward the pandemic — workers who believe that the virus is less of a health threat might be less inclined to stop working. Lanza also suggested that relative income levels between states could also in part explain the numbers — states with younger and poorer populations might be less likely to see people leaving the workforce.

“We remain a really high income state, so that tells you that folks in Connecticut have the resources to basically check out of the labor market,” said Lanza. 

Carstensen said he believes that the shrinking workforce is an outgrowth of a larger problem for Connecticut — a stubbornly stagnant economy. He said that the state never fully recovered from the Great Recession in 2008, and that the state’s economy has grown more slowly than that of its neighbors over the last decade. 

Carstensen attributes lag to a variety of factors, including Connecticut’s failure to invest in information technology and data centers and its continued reliance on manufacturing, which has needed to employ fewer people as technology has improved. Carstensen also said the tax on hospitals has damaged the economy, and that poor public transportation has limited public options.

“We’ve talked for years about investing in our infrastructure, but we haven’t done it,” he said. 

Carstensen warned that while the American Rescue Plan Act would bring in funding for the next few years, but would not address underlying structural problems for the state. 

“We’ve paid extraordinarily little attention to these issues, and we are a very self-satisfied state,” he said. “And when things go bad, you have a hard time being honest about that.” 

Where have all the workers gone? 

But economists also said that these conclusions would change depending on who exactly has left the workforce.

According to Cunningham, if the majority of people leaving are retirees, the impact would be less dire, but the state would still have lost a vast amount of knowledge. 

“Those are the people who have accumulated the most experience and are potentially the most productive,” explained Cunningham. “It can have a much bigger negative productivity in the long run.”

A large number of women leaving the workforce, Cunningham said, could be potentially more problematic. First, it puts more of a strain on families who have relied on two household incomes. Second, if people buy less, the decrease in revenues from sales tax could mean less money for the state. And third, if families leave the state, it could mean less funding for schools and push towns toward regionalization.

It’s unclear whether the workforce decline over the last year could be related to people leaving the state. Carstensen said that while young people have left the state in search of employment, the population has been fairly stable, and Lanza pointed out that the housing market in Connecticut has been booming. 

More problematic, Carstensen said, are the businesses that have relocated to other states. Given that employees pay income taxes to the state where they work, not where they live, the loss of businesses to other states can have a negative effect on the state economy.

Cunningham also said that immigration has been central to Connecticut’s workforce growth. He said the decrease in immigration into the U.S. over the last four years, exacerbated by the pandemic, could have an effect on Connecticut’s working population.

Not all bad news 

Lanza and Cunningham warned against interpreting the shrinking workforce as entirely bad news. 

Having people retire, or decide to go back to school, or gain new skills, they said, would all be positive developments. Lanza said there had also been a large increase in the number of people deciding to start their own businesses. 

Carstensen said the state has already made some positive changes, including creating a more competitive framework to attract data centers and investing in workforce development. He said that Connecticut was also a leader in biotechnology, and praised the state’s success in keeping Pratt and Whitney in Connecticut. 

But Lanza said the state could do a better job of training workers to meet the needs of Connecticut businesses. 

“Instead of spending our time and resources trying to chase down big companies for these headlines of expanding or relocating to Connecticut, I think it’s equally or more important to invest in workforce development,’ he said. “The needs of the workforce can turn on a dime, and our workforce education and training system need to be prepared.” 

Cunningham also suggested that the state needs to overhaul its tax system in order to retain lower-income workers.  

“Our state does not do well with inequality,” said Cunningham. “We have a very regressive taxation system. This is a state that taxes the lowest income people.” 

And Carstensen said Connecticut could do more with its foreign-trade zones, which allow companies to engage in trade with other countries at a lower cost. 

But while Cunningham agreed that a declining workforce could make the state less attractive to companies, both he and Lanza warned against putting too much stake in workforce size without considering Connecticut’s other positive attributes. 

“What kind of welfare do the residents of the state of Connecticut enjoy?” said Lanza. He said that Connecticut’s schools, its crime rates and its quality of life all needed to be taken into consideration when thinking about how desirable the state is as a place to live and work. He pointed to a proliferation of new businesses and the housing boom as two positive signs of growth.

“When you look at these folks that maybe voluntarily retiring from the labor force early, that’s going to bring down our employment numbers,” he said. “Does that mean there’s something wrong with CT’s economy, that they are worse off? They are sort of saying, by the choices that they make, that ‘Hey, I’m better off. This is how I want to spend these coming years of my life. I’ve learned that I don’t like the grind of a 9 to 5 job. I’m out of that. I’m happier now.’” 

The June report from the Department of Labor also found that the state has reached an unemployment rate of 7.9 percent, and has recovered 64.6 percent of the jobs lost in March and April of 2020. 

“While the unemployment rate remains higher than we would like, one of the reasons the unemployment rate hasn’t dropped is the large increase in the labor force,” said Patrick Flaherty, director of research and information at the Department of Labor, in a video message from May of 2021.  

Flaherty said the more than 40,000 people joining the workforce between March and June of 2021, “showing that people who had not been looking for work during the pandemic are out looking for jobs.”

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