Report: Falling Jobless Rate Reflects Discouraged, Departing Labor Force

Dec 23, 2013

Fred Carstensen, director of the Connecticut Center for Economic Analysis, said the falling unemployment rate reflects people giving up on looking for work.
Credit Chion Wolf / WNPR

Connecticut saw some encouraging employment statistics in the second half of the year. But some economists are urging a closer look.

The figures released last week showed gains of about 4,000 jobs in November, and the unemployment rate falling to 7.6 percent, seven-tenths of a point lower than a year ago. But the latest forecast from the Connecticut Center for Economic Analysis shows that the figures are only superficially encouraging. 

"If you just go back a year," said Director Fred Carstensen, "and look at the level of people wanting to be employed and in the labor force, and use that as your standard, then the unemployment rate is still over ten percent."

In other words, that falling unemployment rate is a reflection of people giving up on looking for work, and leaving the labor force.

Carstensen said that if you go back further than a year, and look at historical labor force participation rates, Connecticut's current unemployment rate would be in the teens. We're not yet close to recovering the number of jobs that we lost during the recession, and the jobs that are coming back tend to be in lower-skilled, lower-wage industries, or in part-time work.

According to the report, all this argues that Connecticut's economy is structurally weak, and needs re-tooling at a basic level. It praises initiatives like Bioscience Connecticut, the Next Gen project at UConn, and the entrepreneurial ecosystem, all intended to re-frame the state's long-term competitiveness. "Those are things that, insofar as we can make them work the way they're intended to work, will fundamentally change the trajectory of the state's economy," Carstensen said. "It's going to take time for those things to really gain traction. In the short run, we need to add some of these other elements."

The other elements he's talking about are more controversial. Carstensen would like to see the release of millions of dollars in capital projects that have been approved for state bonding but never started. He's also a proponent of allowing companies to exercise the millions of dollars they have stockpiled in unused tax credits. Both would seem, in the short term, to cost the state money at a time when fiscal discipline is at a premium. But, Carstensen said, "You know, when your roof is leaking, you need to repair the roof."

The report also sounded a note of caution about the Fed's recent moves to taper its massive stimulus of the economy. The report said that if quantitative easing is removed too quickly, it could end up costing Connecticut more jobs.