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Working & the Economy


STATE AND LOCAL GOVERNMENTS WILL FACE BRUTAL WORKER CRUNCH, EXPERT WARNS

By Bruce DePuyt
January 14, 2022
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Photo by Joe Raedle/Getty Images.

Maryland policymakers can expect robust economic growth in the years ahead,
fueled by federal aid, a return of workers to the labor force, and consumer
spending, an economist told a Senate panel on Thursday.

But rising wages — propelled by an unusual churn in the workforce — are going to
make it “incredibly difficult” for state and local governments to attract and
retain talent.

The assessment was offered by Dan White, director of government consulting and
fiscal policy research for Moody’s Analytics. His annual briefing helps prepare
members of the legislature’s fiscal committees for the thousands of spending and
revenue decisions they will make during their 90-day session that began on
Wednesday.

White told the Senate Budget and Taxation Committee that “the economy is doing
quite well, the labor market is coming back,” and that American households are
sitting on an historic amount of cash ($3.5 trillion, more than triple the
normal amount) — money that is likely to be spent by consumers post-pandemic.

But he warned that “inflation is starting to kick up much higher than we would
have ever expected.”

Inflation and the potential for a new COVID variant represent the biggest
potential threats to the economy in the near future, White said.

Consumers saw prices jump 7 percent in 2021, the largest jump in 40 years.
Supply chain issues, a shortage of truck drivers and manufacturing problems in
China account for much of the increase.

And it’s not just shoppers who are suffering sticker shock.

Employers are having to pay more to keep workers and fill vacancies, in part
because of the number of people who have left the labor pool. That’s where state
and local governments are getting hammered by an increasing “quit-rate.”

Screenshot from presentation to Maryland Senate Budget and Taxation Committee,
June 13, 2022.

“The state and local government rate is as high as it has ever been,” White told
lawmakers. “And we have more state and local job openings than we have in any
other industry.”

While the private sector can raise prices to offset rising wages, state and
local governments cannot. “You’re having to compete in a very difficult labor
market right now, and attracting folks into the public sector labor force is
going to be incredibly difficult over the next four or five years,” White said.

Asked about his legislative priorities for the new session on Wednesday, Senate
President Bill Ferguson (D-Baltimore) listed several, including “ensuring that
we have the best and brightest public workforce, and that means salaries,
adjustments and investing in our public workers.”

“We have got to make salaries more competitive across the board,” he added.

At her last Board of Public Works meeting, former Treasurer Nancy K. Kopp (D)
warned about a looming state government “brain drain” brought on by retirements.

She said it has “always” been “a serious issue” but now is “reaching a critical
stage.”

White said people are hesitant to return to the workforce for two main reasons —
they’re not comfortable being around others in the midst of a pandemic and they
have childcare issues.

The economy is expected to reach “full employment” later this year, but he
cautioned that economists may need to recalibrate their definition of “full
employment” given the dramatic flux in the labor market.

On a percentage basis, more Marylanders have quit their jobs during the pandemic
than in the nation as a whole, and workers here have returned to the workforce
more slowly, White told the panel.

The rise in telework is also having impacts on the decisions employers about how
much space they need, a trend that will impact local planning and land use.

“We’re seeing increases in warehousing and server farms, and we’re seeing big
cutbacks in where we put people. Because we just don’t need as large a space to
put people as we did.”

Maryland finished fiscal 2021 with a $2.5 billion surplus, much of it tied to
pandemic aid from the federal government. Gov. Lawrence J. Hogan Jr. (R) and the
legislature are expected to tussle in the coming weeks about how to best use
those funds.

“We’re going to have this one-time revenue,” said committee chair Guy Guzzone
(D-Howard). “But what happens the next year? Is it going to catch up to us?”

Yes, White said, noting that higher-than-normal inflation is likely to boost the
costs the state faces.

“I think a lot of people are kind of overwhelmed with how much money they have,”
he added. “It’s exceptionally important that one-time monies are spent on
one-time things.”

Tags: Bill FergusonDan WhiteGuy GuzzoneLarry HoganNancy Kopp
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BRUCE DEPUYT



REPORTER

Bruce DePuyt spent nearly three decades on local television, including 14 years
as executive producer and host of News Talk on NewsChannel 8 in the Washington,
D.C., area. He has served as reporter, anchor and producer/host of 21 This Week
in Montgomery County and as reporter/anchor at NBC affiliate WVIR-TV in
Charlottesville, Va. He’s a regular contributor to WTOP (103.5 FM) and
frequently moderates community and political events.

All posts by Bruce DePuyt


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