The suburban myth of a mass exodus from a virus-plagued New York City to the supposedly safe environs of Connecticut died with the recent release of Census Bureau interstate migration data.
While New York State lost over 400,000 residents to other states from April 2020 to July 2021, Connecticut attracted a mere 226 net new residents from other states. Incoming New Yorkers passed fleeing Nutmeggers.
And that’s the good part. Connecticut’s labor force plummeted by 100,000, or more than 5%, from February 2020 through November 2021, according to the U.S. Bureau of Labor Statistics. Only two state workforces contracted more.
And it gets worse. The most recent BLS employment data shows Connecticut with 110,000 on its unemployment rolls. That translates into a 6% unemployment rate, ranking the state in the bottom ten in the nation.
The combined 210,000 of labor force dropouts and those unemployed in November equals 10.9% of Connecticut’s pre-pandemic workforce in February 2020, by far the worst reading of the 50 states. The next worst states by this measure are Pennsylvania (10.0%), Maryland (9.5%) and New York (9.3%). Over the period, 15 states grew their workforces.
As the new year dawns, Connecticut faces economic calamity. No economy can grow with a shrinking workforce, nor thrive when trailing its 49 direct competitors by such a huge margin.
The storyline about a Big Apple exodus to Connecticut should have been true. New York raised taxes, jacking the top combined New York City-State income tax rate to 14.8%, far above Connecticut’s top rate of 6.99%.
New York City’s COVID tragedy played out on national TV, with refrigeration trucks parked outside hospitals as makeshift morgues. While Connecticut’s actual experience was only marginally better, there were no such horrifying TV scenes.
Yet in face of such dramatic contrast, Connecticut failed to capitalize. Similarly situated states in northern New England did. While relatively urban Massachusetts lost 54,000 residents, Maine attracted 17,000 and New Hampshire netted 14,500, in each case more than their entire population growth in the decade from 2010 to 2020.
Connecticut underperformance should be the number-one focus of state policy makers. For starters, Connecticut is one of many blue states which imposed relatively restrictive shutdown measures that throttled business activity. The question is whether business can recover.
A critical determinant will be the availability of labor. Presumably most of the 110,00 on the unemployment rolls will return to work.
That cannot be said of the 100,000 dropouts. The 15 states that grew their workforces during the pandemic had to have attracted that growth from somewhere. Likely, many Connecticut’s dropouts departed permanently to more business/job-friendly states.
That dismal outlook comes before factoring in Connecticut’s serious long-running problems. Its public sector is the most unionized in the nation. Public sector unions wield enormous power, delivering overgenerous compensation to their members, whose compensation ranks consistently in the top five of the 50 states. Compensation eats up more of the state budget every year, requiring annual tax increases, extracted mostly from beleaguered comparable private sector workers making much less on average.
State employees were given a 5.5% wage hike in the middle of the pandemic in July 2020, a raise Governor Lamont asked them to delay. They refused. Lamont backed down. He couldn’t even threaten layoffs, because the unions were in the ninth year of a regularly renewed contractual no-layoff guarantee.
The state is depositing $1.62 billion this year and an estimated $1.76 billion next year into the state-run teacher and state employee pension funds, over and above the state’s regularly scheduled contributions. The deposits are fueled by gushing income tax revenue from the state’s professional investment industry, much of which bypasses the budget and is funneled into the pensions, according to automatic fiscal rules. The tax revenue would have provided much relief to hard-pressed workers and struggling general businesses. Is it any wonder that workers decamped and businesses closed?
While the deposits shore up the pension funds, those funds remain drastically underfunded — the state employee fund is one of the three worst-funded of the 50 states. It is extremely difficult to fund pensions which are based upon such lavish pay.
This brings to mind Warren Buffet’s famous 2019 remark that he wouldn’t invest or move a business into a state with huge unfunded public pensions. If employers won’t come or stay (GE departed in 2017), who will employ workers who do stick around?
It is a good thing that the myth of Connecticut as a safe haven has died. Maybe its passing will concentrate the collective mind of state officials and encourage them to address the state’s dire economic condition, beginning with the severe imbalance between the state’s public and private sectors.
Red Jahncke is the president of the The Townsend Group Intl, LLC and a regular contributor.