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July 20, 2015 SILVER TSUNAMI

CT budget needs economic growth

PHOTO | HBJ File The key to Connecticut ensuring that its economy grows fast enough to deal with the higher social costs of an aging population is to attract younger workers who can replace older workers, particularly in manufacturing.

Connecticut's economy must grow at a faster rate — at least double — in the years and decades ahead to grapple with an aging population that will increase demand for social services and constrain the state budget in other ways, state officials and economists warn.

If that growth doesn't happen budget deficits will haunt state lawmakers for years to come, increasing the prospects of further tax increases or service reductions to accommodate an aging population.

And the key to Connecticut's economic fortunes, economists say, will be attracting young workers while hoping older workers retire outside the state.

Connecticut's gross state product (GSP) grew 0.6 percent in 2014. The best case scenario for near future years is 2 percent annual growth, economists predict, which pales in comparison to the 4 percent growth in nearby states like Massachusetts.

“If we don't change the trajectory, things are really going to go downhill in as little as three to four years,” said Fred Carstensen, director for the Connecticut Center for Economic Analysis.

Working population

Ideally for the state budget, Connecticut's population would be comprised of a maximum number of working-age individuals (18-65) and a minimum number of those aged below 18 or above 65, who generally have a greater need for social services like health care, education and food.

As Baby Boomers (those born between 1946 and 1964) retire, however, Connecticut doesn't have enough of the next generation (Generation X, born between 1964 and 1979) to fill all the vacant positions, said Ken Gronbach, a futurist based in Haddam. Millennials (born between 1980 and mid-2000s) will actually supply the largest labor force in history, but at ages 11-30, that generation is still too young to be earning the peak wages of those aged 40-65 who contribute the bulk of income taxes and consumer spending that funds the state budget.

“What is going to happen is the Boomers are going to leave the workforce, and you are going to see a flood of Gen Xers coming into Connecticut,” Gronbach said. “Since that workforce is smaller, you are going to have to pay them more to get the top talent.”

Will they leave?

One way Connecticut can avoid paying the costs of an aging population — at least the ones it doesn't have a prearranged obligation to, like state workers — is for older residents to leave Connecticut.

If they flee, Connecticut will shift the social costs of caring for older residents to other states, putting less financial pressure on the state budget.

Gronbach said he believes there will be an exodus of retired workers to states with warmer climate or lower costs. Additionally, the housing market is improving, giving the older workforce more money to move around the country.

State Comptroller Kevin Lembo, however, said he isn't so sure Baby Boomers will have the financial flexibility to move, citing retirement savings studies that show only 59 percent of full-time workers have enough saved for retirement.

Will they come and stay?

Attracting younger workers will be key to generating the economic output the state budget needs to grow, Carstensen said.

Connecticut's advantage over nearby job hubs like New York City and Boston is its lower costs and more open setting, said Gronbach, who is bullish about the state's prospects of attracting younger workers.

“Where else can you live in a rural setting and still be right in the middle of everything? Who wouldn't want to come here?” Gronbach said.

Carstensen disagrees that Connecticut can attract young workers, simply for the reason that the state has had little job growth for the last 15 years. That is why Connecticut's median age of 40 is nearly three years older than the national average, because there are no jobs for younger workers, he said.

“We have an aging population because we have no job growth,” Carstensen said. “If you have no job growth, there is no reason for people to stay here.”

If Connecticut can get economic growth to create jobs, then the ensuing state budget revenue increases should be spent on services like schools and health care, which will be conducive to young workers raising families, Gronbach said.

“We've been short on babies,” Gronbach said. “Ultimately, you need younger workers to replace the older ones.” 


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