The state’s unemployment rate would approach a gloomy 11 percent if more than 64,000 people hadn’t left the workforce since mid-2010, the University of Connecticut’s economic think-tank reported Monday.

And while the Connecticut Center for Economic Analysis recognized Gov. Dannel P. Malloy’s efforts to grow the economy, it said the budget deficits that have been projected after the next election, coupled with a failure to invest enough in the state’s infrastructure, remain big obstacles.

While the state Labor Department released a 7.6 percent jobless rate late last week, the center’s latest quarterly analysis called it “superficially encouraging” and “misleading” because of how much the state’s workforce is shrinking. 

“The SA (seasonally adjusted) figure is a smoke screen on the true situation,” the center wrote. “The improving unemployment rate is, in large measure, an artifact of declining participation.”

The unemployment rate is defined as the percentage of the total labor force – both those working and those seeking jobs – that is unemployed.

So if more jobless residents stop seeking employment assistance from the Labor Department, retire, move out of state, or otherwise give up on finding new jobs here, the unemployment rate improves – even if the overall economic picture does not.

Where would Connecticut’s unemployment rate be if the labor force stood at its peak level, which it reached in the second quarter of 2010?

The center said it would be about 10.7 percent.

More than 64,150 working-age adults “simply stopped looking for employment during the last three years,” the center wrote. “So while Connecticut’s sluggish recovery has not only failed to restore jobs lost since 2007, the state’s economic malaise (has) driven many adults out of the work force.”

Economist Fred V. Carstensen, the center’s director, said the number of people in the labor force can vary significantly as a result of retirements, young adults entering the workforce and households moving.

But the center chose to look at the mid-2010 labor force numbers because they are both a peak for Connecticut and a relatively recent benchmark that can provide responsible insight into the current situation.

“People become a little more optimistic as the economy gets better, and we’re definitely seeing some of these people returning” to look for work, Carstensen said.

But, he added, the current 7.6 percent unemployment rate should be seen as only another step in “a slow, moderate recovery.”

“While hypotheticals may make for interesting academic work, government must deal with reality,” Malloy spokesman Andrew Doba said. “And the reality is that unemployment is at its lowest level since 2009 and we have grown more than 40,000 private sector jobs since Governor Malloy took office — the largest gains in private sector employment since the late 1990s.”

But the Democratic governor’s Republican critics said the new analysis shows a lingering weakness in the state’s economy.

“This report tells us that far too many of our neighbors have become so discouraged with the lack of opportunity in Governor Malloy’s economy that they have given up looking for full time work altogether,” said Senate Minority Leader John P. McKinney of Fairfield, who is running for governor. ” … This news should be a wakeup call to the administration and to the legislature. We need to work together to improve our business climate and help put our residents back to work.”

“The state’s unemployment rate has been artificially understated because there are far fewer people in the labor market now than just 2010,’’ said House Minority Leader Lawrence F. Cafero of Norwalk. “This (UConn analysis) is an apples-to-apples comparison.”

Doba added that “the administration has always said that while the current economic situation is improving, we still have a long way to go.  After years of stagnation, we are creating jobs in industries that are poised to grow for years to come.  And while most of these investments are geared to produce results over the long term, we are seeing progress right now.”

Still, current employment in Connecticut remains below 1989 levels, the UConn report states.

The extraordinary persistence of weak job creation clearly shows “profound structural weaknesses in the state’s economy, weaknesses that surely pre-date the devastating recession that hammered the state economy at the opening of the 1990s,” the report states.

Carstensen said these weaknesses include:

  • A lack of diversity in an economy that relied too heavily on its defense industry and still depends greatly on insurance and financial services;
  • An aging, overcrowded transportation network;
  • And, a lack of new business start-ups tied to academic research.

Carstensen and the center’s report recognized Malloy administration efforts to strengthen the economy, both in the long- and short-term.

These include the Bioscience Connecticut project in Farmington, key investments in digital media, the First Five and Business Express Loan programs and manufacturing training initiatives.

“Even so, deeply discouraging budget projections … promise a return of large deficits to the state’s operating budget within two years,” the center wrote, referring to projections that a deficit as large as $1.1 billion, or 6 percent of annual operating costs, awaits the winner of the November 2014 gubernatorial election. “They reveal how much must still be done.”

Carstensen has also been critical in recent months of a $6 billion backlog in the number of state building projects that have been approved but not even started.

According to reports from state Treasurer Denise L. Nappier, that’s how much financing has been approved by the State Bond Commission. But the money for the projects has yet to be borrowed and actually spent.

When Malloy succeeded Gov. M. Jodi Rell in January 2011, the backlog was half that amount.

Labor unions have argued that state agencies overseeing construction projects, particularly the Department of Transportation, are badly understaffed and unable to launch projects quickly.

And the debt service accounts in the state budget — which repay financed projects — are lean, which indicates that the Malloy administration intends to limit new projects. 

The amount of money allocated to repay the costs of financing non-transportation projects rose 1 percent last year, and drops 12 percent this year, which is below 2011 levels.

In the Special Transportation Fund, the debt service account is just 5.4 percent higher than it was two years ago.

The center for economic analysis reported in mid-September that Connecticut could create up to 28,000 new construction and related jobs over the next two years if it can launch projects worth just half of the amount on its backlog list.

Carstensen also repeated his assertion that state government needs to use its business tax credits more effectively to encourage companies to add jobs.

Several reports from the center have urged the administration to address the nearly $2.5 billion in so-called “stranded” business tax credits that have built up on the state’s ledger over several decades.

These are credits that companies are entitled to, but can’t claim because they don’t earn enough or they don’t owe enough taxes to use the benefit.

But if companies create enough high-quality jobs, Carstensen says, it would generate more than enough economic activity — and income, sales and other tax revenue for the state — to offset the cost of paying out those stranded tax credits.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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