Print

Self-Employment Is An Uncounted Foundation Of Connecticut's Economy, UConn Experts Find

Mara Lee

September 08, 2010

In one of Linda McMahon's television ads, she says: "Last year, Connecticut was 47th in job creation."

Fred Carstensen, a University of Connecticut economist, frequently reminds audiences that Connecticut has had no overall job growth in 20 years.

Those claims miss an important fact about the state's workers, according to the fall edition of The Connecticut Economy, a UConn quarterly magazine being released today: Workers in the state aren't all on payrolls.

Self-employed consultants, independent contractors, eBay and etsy.com entrepreneurs — none of those jobs are reflected in the payroll employment data that politicians and economists bemoan. And in Connecticut, as it turns out, the shift to self-employment has been higher than the national average.

That fact would help explain why crucial measures such as family income hold up well year after year.

"At times we're at a loss to explain how you can do so badly in employment gains and do so well in these other areas," said Steven Lanza, editor of the quarterly, who wrote a piece in the quarterly on self-employment. "By that reckoning, the state looks like an economic backwater, isolated from the main currents of economic growth. Yet over the same period, Connecticut has repeatedly ranked tops in income and worker productivity."

Only nine states have a higher share of self-employed workers.

"There is this shadow economy," Lanza said. "That does show a different picture for Connecticut, a more dynamic picture."

The numbers, based on federal income tax filing data, are surprising. Self-employment jobs in Litchfield County are fully half as common as regular payroll jobs, Lanza found, although it's unclear how many of those self-employed people also hold jobs on regular payrolls.

If you've ever wondered how so many beautiful, charming homes could be supported in an area with so few jobs, self employment — along with, of course, New York money — is your answer.

"Especially in this day and age, somebody could be doing consulting work for firms on the other side of the U.S.," Lanza said.

Lanza said that if you combine traditional payroll jobs and self-employment, Connecticut is no longer at the very bottom of the rankings — it climbs all the way to 35th place. The article does not say how many people in the state are self-employed, but says that in 2008, there were more than 500,000 "shadow" jobs.

And if you add in the fact that some states with rapid job growth are also having rapid population growth, and therefore look at job growth relative to population, "the state's job performance almost looks impressive."

Combining both measures, Connecticut is 10th out of 50 states, he said.

The mistaken belief that Connecticut is as troubled as the Rust Belt's poster child distorts public policy, Lanza says.

"We are nowhere near being in the same boat as Michigan. I know I've seen that comparison made, and it's absolutely an inappropriate comparison," he said."We are in fact more entrepreneurial than we think we are."

The state should have been paying more attention to issues for the self-employed, such as individual health insurance, he said, although he noted that national health care reform will help in that matter once it takes full effect in 2014.

Separately, the latest edition of The Connecticut Economy attacks another popular perception — that manufacturing is at a disadvantage because of electricity, wages and taxes in the state. In fact, output per worker is higher than in many other states. "A state's manufacturing wage tells us virtually nothing about its production costs per dollar of output," the authors wrote.

Nationally in 2007, the average unit cost of manufacturing $1 worth of goods was 83.3 cents. For Connecticut, it was 79.3 cents — more efficient than all but seven states. South Carolina, which has a higher proportion of workers in manufacturing, and has lured high-profile factories such as Boeing and BMW, is ninth worst in efficiency, with costs higher than 85 cents per dollar of goods.

Professors Subhash Ray, Lei Chen and Dennis Heffley wrote that a "problem with the claim that Connecticut's loss of manufacturing employment has been driven by high wages is that it fails to explain why the decline is so pervasive across nearly all the states, and even across most mature economies."

Factory workers are still a higher percentage of the workforce here than the country as a whole.

Lanza said both his piece and the piece on manufacturing share a moral: "Certainly self-examination and being able to be critical of oneself is a good thing, but if it conveys a message that Connecticut is a lousy place to do business, stay away, it may do more harm than good."