Connecticut is paying a stiff price for more than a decade of poor growth in high-paying jobs.
Unprecedented federal unemployment assistance pushed personal income nationally up 10 percent amidst the pandemic. But Connecticut — with an economy dominated by retail and hospitality jobs — ranked dead last with only half the national wage growth, according to a new analysis from Pew Charitable Trusts.
“Connecticut has a long slippery slope to meaningful job creation,” said Don Klepper-Smith, an economist with DataCore Partners, and former chief state economic adviser. “Most people are unaware of the economic devastation that has taken place in Connecticut.”
On paper, things look good here.
Personal income rose in Connecticut by 5.1 percent from July 2019 through the end of June this year — more than five times the 0.9 percent growth the state achieved, in total, between 2007 and 2019.
But two federal relief programs enacted in March were the major factors behind that growth.
Traditionally, state unemployment benefits supply up to 26 weeks of assistance to the jobless or under-employed.
But Congress extended that window to 39 weeks, providing an additional $600 weekly payment to most receiving state assistance.
Federal lawmakers also channeled relief to many who didn’t qualify for regular state unemployment — contractors and other self-employed in the so-called “gig economy,” as well as to those who worked part-time during the pandemic.
Many beneficiaries of the federal aid have exhausted those benefits, which expire for all at the end of December.
“The temporary federal assistance obscured the coronavirus’s blow to every state’s economy, as earnings—the bulk of personal income—plummeted,” the Pew report states.
More importantly, the analysis shows Connecticut’s economic pain, in some ways, is worse than the nation’s.
While personal income here grew 5.1 percent between mid-2019 and mid-2020, the national growth rate during the same period was 9.7 percent.
And while Connecticut’s personal income rose less than 1 percent during the 12 years prior to the pandemic, that also was roughly half the national growth.
Why did Connecticut fare so poorly, particularly during the past year? Because unemployment benefits are scaled to salaries that the now–unemployed were receiving when they still had jobs.
The state lost about 300,000 jobs during the worst of the pandemic last spring, and a little more than one-quarter of all jobs lost were in tourism and hospitality.
And because many unemployed people, regardless of salary, received the same, supplemental $600 federal payment each week, the underlying weakness here — the lack of high paying jobs — was masked, said University of Connecticut economist Fred V. Carstensen.
The state Department of Labor still is paying out about 207,000 jobless benefits weekly, and Carstensen, who heads the Connecticut Center for Economic Analysis, said more companies likely will lay off workers this winter as they move past their initial pandemic shock and re-evaluate positions.
That all translates into economic stagnation — at best.
As state and federal benefits expire and jobless totals grow, “there’s not going to be an expansion of demand for goods and services,” Carstensen said, “As frightening as it is, there is some possibility that the fourth quarter will have zero growth.”
Another element masking the risks to Connecticut, Klepper-Smith said, is the stock market’s robust recovery from the pandemic — and the confusion among some policymakers here between the market and the overall economy.
State government has actually increased its fiscal reserves since the pandemic began, largely due to surging income tax receipts tied to capital gains and other investment earnings.
The Dow Jones Industrial Average — which measures the performance of 30 large companies listed on stock exchanges in the U.S. — opened Monday at just over 28,300 points. That’s 11 percent higher than where it stood on March 1, right before the pandemic struck Connecticut and the rest of the nation.
Many of Gov. Ned Lamont’s fellow Democrats in the legislature favor higher taxes on wealthy households and more funding for education and health care.
But Lamont insisted last week that he wanted to hold taxes flat, partly to remain competitive with other states, but also because “we have the [economic] wind to our back.”
The governor “is misrepresenting the economic devastation that’s been wrought,” Klepper-Smith said.
While 300,000 jobs were lost here shortly after the pandemic broke out, the state labor department still is paying out more than 207,000 unemployment benefits per week.
And Connecticut was the only state in the nation that failed to fully recover from The Great Recession of 2007-09. The state regained just 86 percent of the jobs lost in that downturn.
A conservative-leaning economist, Klepper-Smith isn’t the only one, though, who fears policymakers may confuse Wall Street with the overall economy.
State Comptroller Kevin P. Lembo, a Democrat, warned in his last monthly budget forecast about a “K-shaped” recovery in which high-income workers avoid the economic fallout of the pandemic while low-wage-earners face housing, health care and food insecurity.
“This K-shaped recovery is worsening existing inequities both in Connecticut and across the country,” Lembo said, adding that families “are turning to state and local governments, as well as our nonprofits, to hang on. As the economy gets stronger, the effects must be felt universally. We can’t leave anyone behind.”
Rep. Caroline Simmons, D-Stamford, co-chair of the legislature’s Commerce Committee, said Connecticut wisely invested in its bioscience and advanced manufacturing fields — both of which will be in high demand as a coronavirus vaccine is developed.
“With the investments we’ve made over the past decade with The Jackson Laboratory [in Farmington,] UConn and Yale, we are one of the leading states in the country,” she said.
But to preserve and capitalize on these investments, Simmons added, state officials must move quickly to close pandemic-induced budget deficits at state colleges and universities and also bolster staffing at vocational-technical schools.
“I think there’s an opportunity now, with so many looking for work,” she said. “A lot of people are going to have to transition to new industries. … This has to be a priority.”
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