A University of Connecticut report released today suggests that declining unemployment rates in the state are largely an illusion.

Titled "Where are the Jobs? Connecticut Struggles to Regain Its Economic Health," the quarterly Connecticut Center of Economic Analysis publication suggests that the state's reported unemployment rate of 7.5 percent in the third quarter would have been 10.7 percent had statisticians counted people who have given up on looking for work.

"The improving unemployment rate is in large measure an artifact of declining participation in the workforce," said the report authored by senior research fellow Peter E. Gunther and others.

The report put a damper on monthly numbers released last week that showed Connecticut gained 4,000 jobs in November and that the unemployment rate had ticked down three-tenths of a point to 7.6 percent. The monthly labor report also revealed that slightly more than half of the more than 120,000 jobs lost in Connecticut during the Great Recession had been recovered.

The UConn counterpoint to the labor report noted that "profound structural weaknesses in the state's economy" have led to nearly 65,000 working-age adults giving up on finding a job over the past three years.

"Connecticut has not created and sustained net new jobs in 25 years; current employment remains below the level of 1989," the report said. "The state's economic malaise (has) driven many adults out of the workforce."

The state's gross domestic product, in decline for the past two years, has contributed to the lack of state jobs, and unless more growth is seen few discouraged workers will be likely to re-enter the workforce, the report said.

"Employment opportunities in Connecticut are being filled by part-time incumbents converting to full-time employment," the report said. "Only very recently have significant numbers of discouraged workers begun to return to the labor force."

But brighter jobs prospects might ironically mean a higher unemployment rate over the near term, the report said, as discouraged workers begin to look for jobs again and therefore swell the numbers who will then be counted as unemployed.

The report said productivity gains in the 2 percent range mean the state often sees little to no job growth unless the economy grows at a faster clip.

"Connecticut's strength in manufacturing, which typically delivers the highest productivity growth, compounds the challenge of job creation," the report said.

The report said initiatives aimed at encouraging and retaining Connecticut businesses provide "critical working capital" to encourage new or expanded industries. But it noted that projections indicating the state budget may be thrown out of balance within two years reveals the extent of Connecticut's economic problems.

Prescriptions that the UConn economists suggested to improve economic conditions in the state included "unleashing the large trove of tax credits companies have earned but not expended to support private-sector capital projects." Another idea is to accelerate the pace of major capital projects already approved by the state legislature.

"Together, these strategies could generate tens of thousands of new jobs in Connecticut within two to four years," the report said.

l.howard@theday.com