Wage Change

By: Joe Poveromo

The United States and Connecticut mobilized almost every tool at their disposal to counter the COVID-19–induced economic crisis. Among these numerous tools were the increased unemployment benefits that had been given out throughout the pandemic. With these increased benefits coming to an end, expectations remain optimistic that there will be an upward trend in the employment rate. Unemployment numbers have remained relatively stagnant for an extended period. Connecticut has seen fluctuating unemployment rates, which ranged from 6 percent to 8 percent for the past year but stabilized around 8 percent in early 2021. The COVID-19 crisis generated an economic response hitherto unseen in Connecticut. The state’s extreme measures (along with Federal governmental measures) have helped the economy recover and hastened the drop in the unemployment rate. Although the statewide unemployment rate remains about 2 percent higher than the U.S. average, Connecticut has seen promising growth. At the beginning of 2021, the U.S. was at a 6.3 percent unemployment rate and ended with a 5.2 percent rate by August (Figure 12), and the November reported rate was 4.2 percent. Falling by almost an entire percentage point, the United States’ aggressive fiscal and monetary policy seems to have catalyzed a positive effect on employment, especially considering the downward trend in unemployment. By contrast, Connecticut’s unemployment rate remains between the aforementioned 8 percent to 6 percent range. Connecticut’s unemployment began at 8.1 percent and ended at 7.2 percent (Figure 13). Overall, the downward unemployment trend seems to be benefiting the labor market and the unemployment rate in general. Despite the encouraging unemployment rate trends, both the country and the state have a long way to go before the numbers return to pre-pandemic levels. To put the numbers in perspective, Connecticut’s unemployment rate in August 2019 was at 3.6 percent, and the national unemployment rate was at 3.5 percent, the lowest rate since 1969 (U.S. Bureau of Labor Statistics).

Figure 12: US Unemployment Rate vs. CT Unemployment Rate

Figure 13: Connecticut Unemployment Rate

Figure 14: Ensemble Forecast, CT Unemployment Rate Figure 15: US Unemployment Rate with 3 Month Moving Average

To further assess the situation, certain techniques were utilized to forecast the go-forward unemployment rate. The forecasting models used were: the Error-Trend-Seasonal (ETS), Autoregressive Integrated Moving Average (ARIMA), Neural Network nonlinear autoregressive model (NNETAR), seasonally adjusted (STLM), exponential smoothing (TBATS), and naive forecasting models. Upon running all these through an ensemble forecast, the forecasted numbers for the next two years are shown in Figure 14 As seen in Figure 15, the unemployment rate is expected to decrease even further in the state of Connecticut and to stabilize around the 7 percent mark. The good news is that the Connecticut unemployment rate does not seem to be increasing, and its safe to say an increase will not be seen for a while. ETS alone, which is the most accurate of the ensemble forecasts, predicts a simple downward curve that stabilizes around September 2023.

Joseph Poveromo ’22

Major: Economics with a Philosophy and History Minor Hometown: Naugatuck, CT

Figure 2 US unemployment rate = RED 3 month moving average= BLUE