Professor: Maine’s economy to see ‘steady growth’ in 2014, but aging workforce clouds future

Charles Colgan
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Posted Jan. 07, 2014, at 12:58 p.m.
Last modified Jan. 08, 2014, at 5:17 p.m.

PORTLAND, Maine — Maine’s economy has finally turned a corner toward “meaningful recovery” and will add roughly 4,000 jobs in 2014, but a major workforce challenge looms on the horizon that may increase labor costs for the state’s employers.

At least, that’s the prediction of Charles Colgan, former chairman of Maine’s Consensus Economic Forecasting Commission and a professor of public policy and management at the University of Southern Maine’s Muskie School of Public Service. He presented his economic forecast for 2014 to a large audience Tuesday morning at the annual “Breakfast with Charlie” event, held on USM’s campus.

“The bottom line today is I think that we did turn the corner in 2013,” he said. “Twenty-fourteen should be a year of steady growth, but — and that will continue as long as the national economy will hold up and we don’t have any more, shall we say, interruptions from the policy point of view down the road — at the same time Maine’s recovery is now getting hit with the basic demographic facts of life in Maine and we are in fact moving into a very different era in the Maine economy.”

Colgan’s multiyear forecast estimates that Maine will gain nearly 18,000 jobs between the second quarter of 2013 and the fourth quarter of 2017, with the majority of those jobs (more than 13,000 of them) being generated within the sectors of professional and business services as well as leisure and hospitality.

Education and health, a major driver of job growth in the past, will only add roughly 2,000 jobs in that period, along with trade and finance, Colgan said. He expects manufacturing and state and local government to shed jobs in that time frame.

However, that forecast is “blatantly optimistic,” Colgan admitted. There are always factors in play and unforeseen events to render even the best economic forecast irrelevant — Colgan has in the past called forecasting “a forlorn hope” — but if things continue on their current trajectory, he believes Maine’s economy should recover a good chunk of the 29,000 jobs the state lost in the recession, which officially ended in 2009.

The expected job growth is not a result of policy changes in Augusta, however, Colgan said. It’s the fact that Maine will benefit from the recovery of the national economy.

“I’m optimistic because this year the national economy will get enough energy to pull us along,” Colgan told the Bangor Daily News after his presentation.

Maine did add jobs in 2013, though total numbers won’t be available until March, when the federal government releases job estimates for the fourth quarter. Colgan estimates the data will show Maine added roughly 3,000 jobs in 2013, which is in line with the 3,100 jobs Colgan predicted would be added in his forecast last January. Colgan admits his prediction was conservative last year. Last year was also a milestone year because it marked the first time data showed three consecutive months of job growth in Maine, he said.

But the job gains of the past year, and the expected gains in 2014, will still not return Maine to its pre-recession employment peak of 621,000 jobs. In Colgan’s current forecast, Maine won’t return to that job total until the second quarter of 2018.

While there’s room for optimism, Colgan warned that even if Maine returns to its pre-recession employment levels, that won’t guarantee steady sailing from there on out. A challenge looms “on the horizon,” he said, which will have major implications for Maine’s business community.

That challenge is one of demographics. Maine’s working-age population is getting smaller. The state’s population of people between 25 and 44 years old peaked in 1990, and then began to fall. It has dropped by 20 percent since then, Colgan said.

So it’s not a problem of the state not having enough jobs, but one of not having enough workers. That worker shortage will create “a serious problem for those of you in the business community looking to hire people,” he said.

However, Colgan said the problem is not necessarily where the workers are going to come from, but how much they’re going to need to be paid to attract them here. Paying nationally competitive wages will “be a shock” for many Maine employers, he said.

“The real threat from demographic transition is not that we will not have workers,” Colgan said. “The real threat is we will have to pay workers more and find ways to have them be more productive. Their productivity gains must be at least equal their wage gains … or we’ll be driven out of business by high labor costs.”

Maine employers will need to innovate on the recruiting front. As an example, Colgan shared an advertisement he found in Sail Magazine for Waldo County General Hospital in Belfast, which was looking for physicians.

Colgan, a fan of the sport of sailing, said he’s accustomed to seeing ads for sailing gear and boats in the magazine, but was pleasantly surprised to find an ad from a Maine hospital seeking physicians.

“This is an example of the kind of innovative thinking we’re going to have to do,” he said.

Sticking with the sailing theme, Colgan compared what Maine needs to do over the next decade or so with what Oracle Team USA did when it wowed fans with an epic come-from-behind-win in the most recent America’s Cup.

“We’re a little bit down. We have some real changes. The boat may not be working quite as well as we’d like it to, but there’s still a lot of innovation, still a lot of things we can do and for that reason I think we are moving away from the crisis of the last few years,” Colgan said. “But we are on the cusp of a major change in Maine, and the next few years, as we recover, are the time we have to prepare for the demographic situation that will face us at the end of decade and throughout the next decade.”

Colgan then addressed the business people in the audience: “If you’re not thinking right now about your workforce needs into this decade and into the next decade, of where you’re going to get them and how you’re going to manage your employee workforce near retirement, and so on, it’s time to think about those things.”

CORRECTION:

The original version of this story said Colgan estimated Maine would see an increase of 8,000 jobs in 2014. That is incorrect. After his presentation, Colgan corrected the figures. He predicts the number of jobs will increase by 4,000. In addition, the original story said Colgan expected federal data to show that the number of jobs in Maine increased by 6,000 in 2013. That is also incorrect. He expects the data to show an increase of 3,000.

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