Report: Aging workforce threatens state’s economic recovery

By the time the state's plodding economic recovery finally takes off in 2014, it could be too late to compensate for an aging workforce closing in on its retirement, says a report released today by the University of Connecticut.

The Connecticut Center for Economic Analysis also repeated its call for state government to make smarter use of its business tax credits, arguing that unless Connecticut both recovers the jobs lost in the last recession and creates 50,000 new ones it won't have enough jobs to entice youthful workers back to the Nutmeg State.

The university's economic think-tank added that while initiatives of Gov. Dannel P. Malloy's administration -- including the bioscience collaborative in Farmington and the small business loan express program -- are "a good beginning," by themselves they won't come close to reversing Connecticut's employment woes.

"If the state does not change its demographic trajectory, it faces a bleak future," the center wrote in a report titled "Recovery Stirring, But Will Connecticut be Too Old to Compete?"

Connecticut, which failed for decades to create new jobs while its young workers migrated away, "now confronts a rapidly aging population," and a "dependency ratio -- residents younger than 18 or older than 64 versus the working population -- that grows dangerously.

The impending economic crisis lies hidden within Connecticut's employment and demographic numbers of the past 35 years, the report states.

Connecticut has added 443,000 jobs since 1977. Yet it reached "full employment" -- a macroeconomic term used when only a minimal level of systemic unemployment exists -- only twice over that period, in late 1988 and again in 2000.

Looked at another way, the 1.63 million jobs currently in the state is about 80,000 below the job total 12 years ago.

While Connecticut's working age population grew, jobs failed to keep pace, the report states. So the Nutmeg State's young adults left, and the remaining workers got older.

And now, as new projections show that working age population poised to begin shrinking as more residents look toward retirement, does that mean lots of job opportunities for young workers?

Not necessarily.

The percentage of men -- across nearly all age brackets but the oldest -- seeking or holding jobs, has steadily declined, due in part to discouraging prospects.

"There is the potential for this outcome to be more sinister and prolonged than meets the eye," the center wrote, noting that studies at UConn and elsewhere have illustrated "the symbiotic relationship between poverty and drug use among America's poor, and has shown the lasting, debilitating effects of this pernicious trend."

And "barring large waves of immigration, that supply of new labor force participants is limited," the center wrote.

Unless and until Connecticut's economic outlook changes, it likely can't attract enough young workers to fill the high-quality jobs state officials seek to grow, the report adds.

"Recovery still is stirring, but without the robustness needed to restore reasonably full employment and household income," the center wrote. And despite some positive signs now, "in the longer term, there is little to argue that this pattern will change."

Residential housing building permits rose by 58 percent here during the first quarter of 2012 compared with the same period one year ago. "Yet permit numbers need to be taken with a grain of salt due to an unusually warm winter and because the value of residential construction permits rose only 16 percent,  signaling plans to build lower cost, smaller housing units," the report adds.

The center is projecting "weak employment growth" until the beginning of 2014, with 30,000 to 35,000 new jobs being created between now and then. Construction and early hiring at The Jackson Laboratory and other projects related to the bioscience initiative at the UConn Health Center could add another 10,000 jobs, the report states.

But even if that happens, Connecticut still would have regained just over half of the 120,000 jobs it lost in the last recession. "No current policies or initiatives come close to reaching the goal in job creation that Connecticut must reach to address its demographic challenge," the report adds.

Catherine Smith, Malloy's economic development commissioner, responded that "clearly Connecticut's economy is in much better shape today than it was even a year ago and the future looks a lot brighter too.  With credit conditions improving, unemployment down 20 percent since January 2011 -- a 3 ½-year low -- and more than 16,000 private sector jobs created, we have reason to be optimistic about the state's long-term economic recovery. That said, the governor makes clear every day that we have a long way to go before anyone can feel satisfied with the state of the economy.

The center's director, economist Fred V. Carstensen, arguably is Connecticut's most vocal advocate for expanding the use of state tax credits to help companies relocate and expand.

And the report says that by embracing this strategy, state government could "vault (Connecticut) to the top of the growth charts and, critically, rescue it from its current bleak demographic trajectory."

By tying credits to job growth targets, state officials could ensure that new income, sales and other taxes generated by new workers would offset the cost of any corporate tax relief provided to businesses.

"The job opportunities it opens up in Connecticut," the report adds, "would surely draw in those new workers and younger population the state must attract to secure its economic future."

But Smith said "Mr. Carstensen's assertion that unleashing stranded tax credits is the cure-all for our economy is off the mark.  These credits are not 'entirely self-funding' because they reduce state revenue when redeemed and there is no evidence that the holders of unredeemed credits would take advantage of Professor Carstensen's scheme at all, much less at a level that would create tens of thousands of new jobs."

The commissioner added that Connecticut's economic turnaround will depend on "a comprehensive, strategic approach that addresses all the issues that make us more attractive to workers and companies alike, including education, economic development, housing, innovation, and  worker training -- something the governor has long been committed to."