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Connecticut's job market blues

Connecticut is a blue state, with a serious case of the job market blues.

In December, the state added just 600 jobs, a sad number, and even sadder because the likely cause is abandonment. That is, workers are leaving the state.

The December number leaves state employment at about 1,625,000, still about 75,000, or 4.4%, below its pre-pandemic level of 1.7 million in February 2020, according to the Connecticut Department of Labor. National employment is only 1.8% below its February 2020 level.

December was a bad employment month for the nation as well as Connecticut, and economists are forecasting job losses for January.

Connecticut's long-term trends are even more disturbing.

Immediately after the shutdown in March 2020, employment collapsed. No surprise. Almost 300,000 Connecticut job were lost. Most of those suddenly unemployed applied for unemployment benefits. Some did not. They dropped out of the labor force completely.

Within a few months, about half of these Connecticut workers reclaimed their jobs.

Since then, however, Connecticut's employment and labor force recovery has been anemic. While the jobs recovery has been slow, the labor force recovery has been even slower. The labor force is still down about 90,000, or 4.7%, below its 1.92 million level in February 2020 just before the shutdown. This is the 3rd worst deficit of the 50 states.

Fifteen states have grown their workforces.

About 105,000 Connecticut residents are currently unemployed. That's 5.8% of the state's labor force, tied for fifth highest rate among the states. Unemployment was 70,000, or 3.7%, in February 2020 before the shutdown.

In combination, the contraction of the labor force and the increase in unemployment paint a dire picture of Connecticut's employment situation.

What is the outlook?

Not good. First, an improvement in unemployment numbers alone will not be sufficient to generate a recovery. Even a return to the relatively good pre-pandemic unemployment level would increase employment by only 35,000 jobs, leaving the state 40,000 short of its pre-pandemic employment level.

For employment to grow, the labor force must grow. Labor force growth has been slow — only about 12,000 over the last half of 2021.

We do know that the people joining or rejoining the workforce are taking jobs. Why? Because joiners and re-joiners cannot go on unemployment. No one first entering the job market can just go on unemployment, and no one can drop out and, then several months later, decide to apply for unemployment benefits. Most states require you to apply for benefits within a couple of months of losing a job.

So, joiners and re-joiners account for 12,000 of the roughly 30,000 in job growth during the second half of 2021. Yet the unemployment rolls have declined by roughly 35,000. Thus, about half the people coming off the rolls have not taken jobs.

Why not?

Some are Connecticut residents who are commuting to new jobs in neighboring states, and therefore not showing up in Connecticut's job totals. Some may have decided to retire. Some may be concerned still about COVID in the workplace.

Others may be holding out for better jobs than the ones they lost. There has been a lot of talk about holdouts. This interpretation is supported by the fact that, across the nation, there are more job openings than people unemployed.

Another equally likely explanation is that some workers coming off the rolls have found jobs after moving to other states while unemployed. They have found jobs in their new domiciles and come off Connecticut's unemployment rolls. This is possible because unemployment benefits are portable.

This is plausible, given that 15 states have chalked up labor force gains during the pandemic. Big gains elsewhere have to draw workers from somewhere.

The hope for Connecticut is that, eventually, hold-outs will find their dream jobs or run out of savings and have to settle for less desirable jobs, and that, eventually, fear of COVID will dissipate. Offsetting these positives is the reality that most retirees won't return to work.

If, however, workers have moved and found jobs in other states, there is little chance they will return to Connecticut, meaning that the shrinkage in the state's labor force during COVID will be permanent.

Permanent shrinkage in the state's labor force would imply shrinkage in the state's economy. That's bad for everybody. For state government it implies less revenue – an alarming prospect for a state with one of the highest, if not the highest, burden of debt and unfunded liabilities.

An election campaign is underway for governor and other statewide offices. When conditions worsen — or simply don't improve, voters usually toss out incumbents. The state's job market blues may wind up painting the state red.

Red Jahncke is the President of the The Townsend Group Intl, LLC and a regular contributor.

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