Connecticut’s Confusing Labor Market

The following was first published in the opinion pages of Hearst Connecticut Media newspapers.

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Connecticut’s labor market is sending conflicting signals. 

For the year ending June 2026, nonfarm payrolls increased by 9,300 jobs, or 0.5%, slightly faster than the national pace. Yet the total number of employed Connecticut residents fell by 69,500, or 3.7%. 

Unemployment increased by 22,700, the labor force shrank by 46,800, and the unemployment rate climbed to 5.2%, the largest one-year increase of any state, even as claims remained essentially flat. 

Some disagreement is expected because the measures count different things. 

The payroll numbers are based on employer surveys, while the unemployment data is taken from surveys of residents. Multiple jobholders, self-employed workers, and interstate commuters can affect the figures differently. 

But are those measurement differences enough to explain a gap this large? And if not, why are employers reporting more jobs while fewer Connecticut residents are working? 

Multiple Job Holding, Self-Employment, College Grads, Commuters

Several changes in the labor market could mechanically cause payroll and resident employment to move in different directions. None appears large enough, however, to explain the full gap Connecticut is experiencing. 

One possibility is an increase in multiple jobholding. The payroll survey counts jobs rather than people, so someone working two jobs appears twice in the payroll figures but only once in resident employment. If multiple jobholding was rising, payroll employment could increase even as the number of employed residents declined. 

National data provide little evidence that this is occurring on the necessary scale. The share of employed people holding multiple jobs stands at 5.3%, and has remained around that level since 2023. 

Connecticut could be behaving differently, but it would be unusual for the state to experience a sufficiently large increase without some evidence of a broader national trend. 

Changes in self-employment could also contribute to the divergence. Most unincorporated self-employed and gig workers are counted as employed in the household figures, but not in establishment payrolls. 

If some self-employed workers moved into payroll jobs, payroll employment would rise without increasing the total number of employed residents. At the same time, if other self-employed workers closed their businesses or lost contract work and began looking for jobs, resident employment could fall and unemployment could rise. 

There is some national evidence consistent with this possibility: the number of self-employed workers has declined more than 3% since December. Even if Connecticut experienced a similar decline, however, the effect would likely amount to only several thousand people—far short of the full decline in resident employment. 

Difficult Labor Market

A difficult labor market for recent college graduates could also contribute to higher unemployment. That does not appear to be the principal explanation, however. 

Connecticut’s nonseasonally adjusted unemployment figures rose sharply in January, before most graduates enter the labor market. Unemployment among recent college graduates has also been elevated nationally but changed relatively little between 2025 and early 2026. 

And with approximately 42,000 students graduating from Connecticut institutions each year, even a meaningful deterioration in their employment prospects would explain only part of the statewide movement. 

Commuting across state lines creates another potential source of divergence. Payroll employment is assigned to the state where the job is located, while resident employment is assigned to the state where the worker lives. 

A Fairfield County resident who loses a job in New York, for example, would reduce Connecticut resident employment without affecting Connecticut payrolls. Approximately 159,000 Connecticut residents work outside the state, so weakness among commuters could have a measurable effect. 

Still, payroll employment has continued to grow in New York and Massachusetts and has been roughly flat in Rhode Island since December, providing little evidence of a broad contraction in the surrounding labor markets. 

Aggregate state figures cannot rule out weakness in particular regions or industries, but out-of-state job losses alone are unlikely to account for the size of Connecticut’s divergence. 

Changing Workforce 

None of the explanations above appears sufficient to account for the full divergence, and the available data do not allow us to identify a definitive cause.

However, Connecticut’s aging population and increased reliance on international immigration provide a clearer explanation for the decline in the state’s labor force than some of the other possibilities. 

Connecticut has one of the nation’s oldest workforces, with 27.4% of its labor force aged 55 or older. As these workers retire, the state must attract or retain new residents to replace them.

But Connecticut continues to lose population through domestic migration, making international immigration particularly important to population and labor force growth. 

Not every additional immigrant resident immediately adds one worker to the labor force. New arrivals include children as well as adults who may be studying, caregiving, retired, or otherwise outside the labor force. 

Even so, sustained reductions in immigration would reduce one of Connecticut’s principal sources of new working-age residents, making it more difficult to offset retirements and other labor-force exits.

Current research suggests we are seeing such reductions. Estimates in 2025 suggested a nearly 50% drop in net immigration, and the Census Bureau projects it falling further into 2026. 

Cooling Job Market?

This does not fully explain the recent decline in resident employment, particularly the increase in the number of unemployed residents.

A cooling job market may be contributing—in a “low-hire, low-fire” environment, workers who lose jobs or enter the labor market can remain unemployed longer even if layoffs and unemployment claims remain relatively subdued. 

Connecticut’s payroll growth has also been concentrated in construction, manufacturing, and healthcare. Weakness in financial activities and professional and business services may indicate a difficult hiring environment for workers whose experience does not align with the industries currently adding jobs. 

Payroll growth is presenting a stronger economy than many Connecticut residents are actually experiencing. 

Taken together, the evidence points less to a single cause than to overlapping forces: retirements and weaker population inflows are making it harder to replenish Connecticut’s labor force, while slower hiring in several white-collar industries may be leaving job seekers unemployed for longer. 

Even still, these forces likely explain part of the divergence, but not its size.

The clearest conclusion is that headline payroll growth is presenting a stronger economy than many Connecticut residents are actually experiencing. 

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About the author: Dustin Nord is the director of the CBIA Foundation for Economic Growth & Opportunity.