Economists say if state workers are laid off, the ripple effect is likely to be harsh
The 7,500 layoffs looming because of state unions' rejection of the governor's concessions agreement will ripple through Connecticut's economy, causing another 3,000 or more lost jobs, Connecticut-based economists said Friday.
Economists use mathematical formulas to calculate the impact of job gains or losses on the economy. Known as the multiplier effect, this type of formula is used to project how a community's economic base may react to major changes in its money supply.
The Connecticut Economic Resource Center said Friday that a multiplier of 1.39 would be applied to the pending state government job losses. This means that for every single job lost, another four-tenths of a job would be lost as well, said Alissa DeJonge, the center's director of research.
That works out to an additional 3,000 or more job losses that could hit the private sector hard, she said.
"This is going to be a big hit for the state's economy," DeJonge said. "It's going to be very challenging because the state hasn't regained the jobs it's lost since the beginning of the recession, so this is really going to stagnate the economy."
While 60 percent of all union members voted for the pact with Gov. Dannel P. Malloy, a simple majority wasn't enough to pass it. Rejection of the deal, which would have provided $1.6 billion in savings for government over two years, results in a $700 million hole in the first year of the state's new budget, and a $900 million hole in the second year.
John Beauregard, executive director of the Franklin-based Eastern Connecticut Workforce Investment Board Inc., and Don Klepper-Smith, chief economist and director of research for the New Haven-based DataCore Partners, said structural change will inhibit job growth and shake consumer confidence.
In recessions in the 1970s and 1980s, there was about as much cyclical change to jobs as there were structural changes, so some of the lost jobs came back when the economy righted itself, Beauregard said. The current economic climate is likely to be predominantly structural, he said, so that the lost jobs are not as likely to return when the economy recovers.
Workers will need a lot more retraining, along with skill sets that reflect flexibility and versatility as government does more with less, Beauregard said.
The uncertainty will put a damper on consumer confidence and increase unemployment, he added.
"It's hard to restore consumer confidence in the positive direction when we take one step forward, one step back," he said.
John Markowicz, the executive director of the Southeastern Connecticut Enterprise Region, expressed concern that an accompanying reduction in municipal aid "might translate into reductions in municipal employees, so there may be a cascading effect in the public sector."
Fred Carstensen, an economics professor at the University of Connecticut, director of the Connecticut Center for Economic Analysis and a state employee who voted to adopt the concessions package, said DeJonge's multiplier effect may be conservative. The total number of jobs lost could top out at 12,000 to 16,000 before all is said and done, he said.
Job losses in the public sector will "swamp the private sector, so it's very likely that we'll have a double dip recession in Connecticut," Carstensen said, as well as a second round of layoffs in the budget's second fiscal year.
The 7,500 layoffs "unleash a very powerful negative feedback structure," he said, "and it's really pernicious. You'll also get out-migration. We're becoming a more and more unattractive place either to expand or start a business."
Carstensen noted that even people who aren't state employees were speculating Friday that there might be "a way we can maneuver out of this mess."
Markowicz also wondered if there weren't "alternatives to the kind of draconian headlines we're reading about." The state might, for instance, be able to absorb the government shortfalls by avoiding layoffs and freezing spending instead, he said.
"You've got a lot of young state employees who are, quite frankly, scared," he said.
The state is also obligated to pay 26 weeks of unemployment before federal compensation kicks in, Carstensen said. It's not clear what the state's total financial obligation would be or what it would cost taxpayers.
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