Connecticut definitely has demographic and fiscal challenges, but the state may actually begin to benefit from its comparatively high unemployment rate, according to economists.
Connecticut’s latest unemployment rate -- recorded in November -- was 4.7 percent, just above the national average. Its neighbors, Massachusetts, New Hampshire, Maine, and Vermont all boast lower rates. In fact, Massachusetts and New Hampshire are now below 3 percent.
“That makes it very hard to be able to find the labor that you need to expand,” said Eric Rosengren, of the Federal Reserve Bank of Boston.
Low unemployment might be desirable, but Rosengren said it brings its own issues. He was speaking to a gathering of Connecticut business people at the CBIA’s annual economic summit.
“It’s a very different kind of problem," he said. "Businesses are going to have to spend a lot more money training people or encouraging people to move to those regions when the labor market gets that tight.”
Patrick Flaherty of the Connecticut Department of Labor concurred that as the economy heats up, the labor market will be critical.
“This trend, where job growth is really slow, and we have a very low unemployment rate, I think does point to the future which really is going to be labor shortages,” he said during a panel discussion.
Flaherty said all that makes it doubly important that private companies begin to reinvest in job training in a way they haven’t since the great recession.
Ryan Sweet of Moody’s Analytics said comparatively higher unemployment -- and hence lower wages may start to make the Nutmeg state look good.
“As unit labor costs rise in those areas, businesses may start to look to Connecticut to relocate or set up new shop in the economy that has lower wage pressures,” said Sweet.
But back to those fiscal challenges; the gathering also heard from Connecticut Governor Dannel Malloy who admitted he faces a massive challenge with the new biennial budget he must present next month. We know there will be spending cuts -- he won’t yet say if tax increases are off the table.
"Every business interest in every community will say, well that's what we want," said Malloy. "We want smaller government, we want state government to take less of our money. But there will be a whole other chorus of people, and it will happen day by day on the front pages of every paper, complaining about the cuts that are being made. You can't have it both ways," warned the governor.
Nick Perna, the economic adviser to Webster Bank urged the governor to continue to chip away at the state deficit, and to extract real concessions from state employee unions to get a handle on unfunded pension liabilities.
"If we solve the budget deficit problem, the economy will grow," he said, calling the situation a feedback loop. "The lousier the economy, the worse the budget deficit, but the worse the budget deficit, the lousier the economy. And at some point we should have broken into this."