Steven P. Lanza

English

Research Papers in Economics

By Steven P. Lanza
With high hopes and a rock-bottom budget, The Connecticut Economy launched its
inaugural issue ten years ago.  Our goal then, as now, was to keep an eye on the state’s
economy and report what we saw, following Yogi Berra’s maxim that “you can observe a
lot by watching.”  We’ve evolved away from a newsletter towards a newsmagazine
format, adding new features along the way.  But always we’ve tried to offer readers
sound economic analysis in easy-to-follow prose.  To mark our anniversary, we take a
break from some of our usual routines (including the quarterly roundup normally featured
on this page) to serve up a few reflections, from past and present editors, on where
we’ve been and where we may be heading.
Forty issues (and counting) of The Connecticut Economy stacks up to a hefty bundle,
so it’s fair to ask, “Why shine so much light into such a small corner of the globe?”
After all, Connecticut ranks just 29th among U.S. states in population and 3rd from last
in land area.  Well, it turns out that this tiny state boasts a world-class economy.  If
Connecticut were a country, it would rank first in per-capita income and 40th in the
total size of its economy, ahead of Denmark, Norway, Finland, Israel, and Ireland,
ahead even of the oil-rich United Arab Emirates and Kuwait.  There’s no black gold
here—the state’s most abundant natural resource is gravel, a heavy though hardly hot
commodity—but there’s one ingenious population nestled in them thar hills.
Connecticut owes its wealth not to natural resources but to the resourcefulness of its
people.  At the head of the class in education per capita, at the top of the heap in
patents per capita, Connecticut is unequalled in worker productivity.  And our remark-
able inquisitiveness, inventiveness and efficiency, so much a hallmark of the state’s
history, sustain us still.
Then and Now
When The Connecticut Economy premiered, the state’s economy was plumbing the
depths of recession.  Our labor market was literally decimated, having lost one-tenth of
its total jobs in just four short years.  Unemployment, at 8.2%, was up sharply from
3.1% in 1989.  Manufacturing and financial activities—the state’s flagship industries—
were bearing the brunt.  Declining defense spending at the Cold War’s denouement
walloped the state’s manufacturers, to the tune of 68,000 jobs or 18.5% of the total.
Bad real estate loans, industry restructuring, and tighter regulations pummeled the
finance industry, exacting 11,000 jobs.  Real gross state product was still stuck below
its 1989 peak.  Housing demand evaporated, and home prices tanked as young workers
left in search of better prospects in the
Sunbelt.  Median home prices in
Hartford and New Haven, which had
doubled inside a few years, sank from
more than $175,000 in 1989 to less
than $160,000 in 1992.
Fast-forward ten years.  The state’s
economy is buffeted by another, albeit
much milder, recession.  Even so, the
job total in 2002 exceeded that of
1992, the differential reflecting size-
able growth in services.  Construction
is booming again, thanks partly to a
rejuvenated housing market.  The
value of construction contracts, measured by F.W. Dodge, climbed 86% over the
decade, and construction jobs were up by a third.  Real estate prices are higher now
than ever, and with falling interest rates and rising incomes, they are also more afford-
able.  In 1992, following the last housing boom, an average employee could “afford”
just 72% of the monthly mortgage for a median home, using the National Association
of Realtors’ definition.  By 2002, the average worker could afford 107% of the median
payment.  Slow improvements in the economy attracted enough in-migrants that, by
2000, the state posted a small net population gain over the 1990 level.  Still,
Connecticut has become relatively smaller—as evidenced by its loss of a Congressional
3 The Connecticut Economy Spring 2003
Ten Years of the Connecticut Economy  CONNECTICUT
ECONOMIC INDICATORS
(Percent change:  2002-Q1 to 2003-Q1)
Indicators of 
Current Economic Activity
Total Nonfarm Jobs -0.9%
Number Unemployed +22.4%
Labor Force +1.1% 
Manufacturing
Jobs -4.1%
Avg. Weekly Hours -0.4%
CT Mfg. Prod. Index +1.6%
Avg. Hourly Earnings +2.7%
New Auto Registrations -0.6%
Travel and Tourism Index -5.3%
Bradley Airport 
Passengers -2.8%
Freight -4.8%
State Tax Receipts
Sales -1.8%
Income -0.7%
Real Estate Conveyance +0.3%
Normalized Electricity Use +3.8%
State Exports (‘01-Q4 to ‘02-Q4) -4.4%
Personal Income (est.) +2.5%
Retail Sales (‘01-Q4 to ‘02-Q4) +4.2%
Confidence in Current Economy -43.7%
Coincident GDI -1.2%
Indicators of 
Future Economic Activity
Help-Wanted Ads
Hartford Courant -29.6%
The Advocate of Stamford -17.9%
State Job Service Postings  -29.6%
Avg. Initial Unemp. Claims -1.5%
Housing Permits -15.7%
Net New Business Starts  -13.5%
Confidence in Future  -17.5%
Leading GDI  -1.2%
Good news
Bad news
+1.1%
Labor Force
+22.4%
Number Unemployed
1.18
1.20
1.22
1.24
1.26
1.28
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
C
T
 
w
o
r
k
e
r
 
o
u
t
p
u
t
 
÷
 
U
.
S
.
w
o
r
k
e
r
 
o
u
t
p
u
t
Connecticut’s Productivity
Advantage Surges On
Source: The Connecticut Economy based on data from the
U.S. Bureau of Economic Analysis
Continued on next page4 The Connecticut Economy Spring 2003 4
seat in the latest redistricting.  But at $42,377 in
2001, per capita personal income is still tops in the
nation.
Yankee Ingenuity
After the wrenching recession of the early 1990s,
what enabled Connecticut to rebuild its economy
so successfully and weather the current storm so
well?  The answer, in no small part, lies in the
remarkable resourcefulness of Connecticut
Yankees.  Our workers remain among the most
productive in the world, and our advantage has
only grown wider.  In 1990, the productivity of
Connecticut workers exceeded the U.S. average by
22%.  Over the ensuing decade, Connecticut’s pro-
ductivity grew at a 2.0% annual clip, outstripping
that of the U.S., at 1.6%, so by 2000 Connecticut’s
lead had climbed to 27% (chart p. 3). 
The state’s edge reflects, in part, the greater
experience and better training of Connecticut work-
ers, who grew both older and wiser over the
decade.  The state’s median age, 34.4 years in
1990, reached 37.4 years in 2000.  (For more on
demographics, see pp. 6-7.)  We’re better educated
today than we were back then: 24.4% of residents
age 25+ hold at least a bachelor’s degree, up from
20.3% in 1990.  But Connecticut’s productivity
advantage also reflects the state’s distinctive mix of
industries and developments over the past decade.
Nowhere did the state get more productive than
in manufacturing—the sector hardest hit by the
Great Recession.  Connecticut manufacturing pro-
ductivity growth averaged 4.8% per year in the
1990s (and 6.4% per year after 1993).  By contrast,
annual U.S. productivity growth in the sector aver-
aged just 4.2%.  In 1990, Connecticut manufactur-
ing workers produced 8% more real output than
did their U.S. counterparts.  By 2000 their advan-
tage had grown to 11.4%.  Unlike employment,
manufacturing’s share of total state output is grow-
ing again—from 18.2% in 1990, down to 15.9% in
1993 but back to 16.9% in 2000. 
A big part of the gains can be traced to improved
capital stock. Manufacturers’ real capital spending
grew at an average annual rate of about 1% in the
1990s, even as jobs shrank by 1.6% per year.  And
the job cuts, though significant, represented a dra-
matic slowdown
from the previous
decade.  Between
1992 and 2002,
job losses aver-
aged about 400
per month, versus
1,000 per month
during the previ-
ous ten-year peri-
od.  In the 1990s,
every sub-sector
within manufac-
turing lost jobs
except for chemi-
cals, up 3.3%,
and (an indication
of the growing
dominance of health care, discussed below) phar-
maceuticals, up 47.2%.  In absolute and percent-
age terms, job losses over the period were especial-
ly steep in transportation equipment and aero-
space—both casualties of defense cutbacks.
That could change as the U.S. reloads its arse-
nal.  Connecticut will fare well under the recent
$400 billion defense authorization bill.  Contract
awards for 2001, the most recent figure available,
totaled $4.3 billion.  While still below the $5.0 bil-
lion total of ten years ago, it’s much improved
from the $2.8 billion average in the intervening
years (chart below).  The state ranks third in con-
tracts per capita, behind Virginia and Alaska.  In
the worst year, 2000, our ranking slipped to just ninth.
Financial services, the other key pillar of the
Connecticut economy, also suffered debilitating job
losses in the early 1990s.  But here too the produc-
tivity gains have been remarkable.  Worker output
grew 3.6% annually in the decade, second only to
manufacturing.  And with average U.S. growth for
that sector at just 1.3%, Connecticut’s productivity
advantage soared to 40%—the biggest differential
for any state sector. 
Financial employment held its own during the
1990s, but the composition of jobs shifted away
from older, lower-productivity jobs towards newer,
higher-productivity ones.  Job losses at depository
institutions were partially offset by gains at nonde-
pository institutions.  Employment in insurance
gave way to employment in commodity and finan-
cial investment activity, which (despite the extend-
ed bear market) has continued to advance.  And a
vigorous housing market has helped real estate
jobs pick up a bit.  Like manufacturing, financial
services gained output share in Connecticut, with
the percentage climbing from 25.8% in 1990 to
29.5% in 2000.
Where the Jobs Are
Manufacturing and financial activities have been
the wellspring of productivity growth for the
Connecticut economy, but non-financial services
have been the richest source of job growth.
Virtually the entire net increase of 140,000 jobs in
the state between 1992 and 2002 originated in ser-
vice-producing sectors.  Jobs in services are less
productive than in manufacturing or finance: out-
put per worker in 2000 (1996 dollars) averaged
approximately $50,000 in services, compared with
$94,000 in manufacturing and $191,000 in finance.
Connecticut workers still hold a sizeable—though
declining—productivity edge in non-financial ser-
vices.  Though output per worker grew at an aver-
age 1.0% per year in the 1990s compared with
1.3% for the U.S, in 2000 the state still held a
16.6% productivity advantage.
The rise of services, the relentless decline of
manufacturing, and the need to harmonize sectoral
descriptions with our trading partners recently
prompted a switch from the old Standard Industrial
Classification (SIC) to the new North American
Industrial Classification System (NAICS).  The five
SIC service-producing industries—transportation,
communication and utilities; trade; finance, insur-
$0
$1
$2
$3
$4
$5
$6
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
Connecticut Defense Contracts 
Score a Rebound
Source: The Connecticut Economy  based on data from the U.S. Depart-
ment of Defense.
B
i
l
l
i
o
n
s
 
o
f
 
1
9
9
6
$5 The Connecticut Economy Spring 2003
ance, and real estate; services; and government—
morphed into eight “supersectors”—information;
trade, transportation and utilities (TTU); financial
activities; professional and business services; edu-
cational and health services; leisure and hospitali-
ty; other services; and government.  Let’s take a
brief tour of the new landscape.
The omnibus TTU sector still ranks first in
employment, though its relative importance has
diminished over time.  Despite the addition of
20,000 jobs over the decade, principally in retail-
ing, the sector’s share of total jobs slipped from
19.0% in 1992 to 18.6% in 2002.  Retail jobs shift-
ed markedly from general toward specialized mer-
chandising, particularly big-box retailing.  The
emergence of Home Depot and Lowes, for exam-
ple, coincided with a flurry of new employment in
the building material/garden subsector which went
from 10,600 to 15,900 jobs.  Output per TTU work-
er increased 2.7% annually in the 1990s, but since
sector productivity grew 3.0% per year nationally,
Connecticut’s productivity advantage declined from
18.1% in 1990 to 15.5% in 2000. 
TTU may be the state’s biggest employer, but the
best sector for job growth has been the old SIC
“services” sector, now captured most closely by
health-and-education services and professional-
and-business services.  Job gains in the former
came chiefly in health.  As more patients were
treated in HMOs, jobs in outpatient services
climbed 13,400 or 23.7%, while growth in hospital
or inpatient care was just 6.7%.  Partly due to our
aging population, nursing and residential care also
posted double-digit job growth (up 29.1%), as did
social assistance (up 66.5%).  During the 1990s,
Connecticut’s productivity advantage over the U.S.
held steady at an average of 30% in education and
14% in health care.
Professional and business services, however, are
a different story.  The state’s productivity there
grew 2.4% annually compared with 2.2% for the
U.S., and now stands 35% above the nation’s.
Between 1992 and 2002, state jobs in the sector
climbed by 38,000 or 23.4%.  Growth in business
services reflects a decade of outsourcing and
reclassification of manufacturing tasks as service
activities: business services once performed in-
house by manufacturing firms are increasingly per-
formed by outside services contractors.  Scientific
and technical jobs have doubled.  Jobs in adminis-
trative support services leapt by double digits, as
they have in “temp” services, reflecting the shift to
just-in-time inventory and production methods.
For glitz and glitter, nothing can match the
splash that casino gaming has made in the state.
Foxwoods opened its doors in February 1992, and
Mohegan Sun followed in October 1996. Today the
two establishments account for some 20,000 jobs.
Measuring their impact is not easy, because even
under NAICS, tribal employment is counted in the
state’s government sector rather than more sensi-
bly as part of the leisure and hospitality industry. 
As for Connecticut’s public sector, it only grew
leaner during the 1990s.  Output per worker inched
up 0.2% per year.  And by 2000, state and local
government activity in Connecticut accounted for
6.3% of total output versus 7.7% ten years earlier.
Although many other states also devoted a declin-
ing fraction of output to government services over
the period, Connecticut managed to preserve its
rank as the second most frugal state in the union,
after New Hampshire.  
Curiously, a look back across the decade through
the lens of NAICS reveals that the state’s smallest
sector, information, showed little job growth.  So
much for all the hullabaloo about the information
economy!  And it wasn’t just because the new
NAICS sector incorporates the “old-economy” func-
tion of publishing.  Information also includes the
“new” telecommunications industry.  At its peak in
2000, employment in telecommunications was only
2,700 or 18.5% higher than in 1992, and with the
carnage in technology since then, total jobs were
back to the 1992 level by 2002.  Of course, not all
segments of the information economy are classified
here.  For instance, NAICS sweeps the growing
computer services business under the rug of busi-
ness services. 
The Challenges Ahead
It’s been a challenging decade for Connecticut,
but the state has again demonstrated its talent for
productively mobilizing human energy.  Our state’s
ability to retain and even widen its productivity
advantages means that it continues to boast a
world-class economy.  No one can do more with
less than can Connecticut workers.  But there are
warning signs to heed.
Productivity growth has largely occurred in sec-
tors where jobs have been flat or falling, while jobs
are growing where our productivity advantage is
slipping.  Demographic changes will also challenge
the state’s ability to keep its productivity engine
humming.  The supply of young workers entering
the labor force will struggle to keep pace with the
number of older workers leaving it (see pp. 6-7).
Finally, amid signs that inequalities across the state
are widening rather than narrowing (see pp. 7-8),
it’s clear that Connecticut’s success in solving the
production problem has not been matched in solv-
ing the distribution problem.  Research in these
pages and elsewhere suggests that worsening
inequalities can hinder economic growth.
The challenges
are daunting.  But
if the past is any
guide, Nutmeggers
will prove equal to
the test.
-80
-60
-40
-20
0
20
40
60
E
d
u
c
a
t
i
o
n
/
H
e
a
l
t
h
G
o
v
e
r
n
m
e
n
t
B
u
s
i
n
e
s
s
 
S
e
r
v
i
c
e
s
L
e
i
s
u
r
e
 
&
 
H
o
s
p
i
t
a
l
i
t
y
T
T
U
C
o
n
s
t
r
u
c
t
i
o
n
O
t
h
e
r
 
S
e
r
v
i
c
e
s
I
n
f
o
r
m
a
t
i
o
n
F
i
n
a
n
c
i
a
l
 
A
c
t
i
v
i
t
e
s
M
f
g
.
Job Changes Over a Decade: 1992 to 2002
A Shift from Manufacturing to
Professional Services
Source: The Connecticut Economy based on data from the U.S. Bureau of
Labor Statistics. 
C
h
a
n
g
e
 
i
n
 
J
o
b
s
 
(
‘
0
0
0
s
)

Ten Years of the Connecticut Economy

http://cteconomy.uconn.edu/articles/SL_S2003.pdf

Ten Years of the Connecticut Economy

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics