Growth vs. Gimmicks Part I: Forecasting an uncertain economic future


Long-term Growth vs. Short-term Gimmicks is a seven part series examining the impact of the COVID-19 pandemic on Maine’s economy, the corresponding effects on the state’s biennial budget, and reforms lawmakers should pursue to achieve real budget savings. Check back tomorrow for Part II.


Understanding the economic shock from the global coronavirus pandemic, made worse by the responses of many state governors, should be of paramount concern to present and future policymakers. As public officials fixated on a single pathogen, broad restrictions intended to slow transmission of SARS-CoV-2, the coronavirus that causes COVID-19, inflicted their own damage on society. These harms will be felt for many years, not merely in economic terms, but to overall public health and happiness.

Divided into two main sections, this series offers a blueprint for a financially sustainable economic recovery, taking into account the most recent forecasts from the Maine state government. The first section seeks to quantify the damage experienced by the Maine economy over 2020 and predict, with as much confidence as possible, when it will rebound to pre-pandemic levels. The second section provides solutions to cover the expected revenue shortfall in the state’s next biennial budget and seed a future of economic growth.


The truly unprecedented economic shock from broad-ranging government orders to shut down businesses, schools, gatherings, and elective medical care in response to the pandemic, was reflected in immensely volatile monthly unemployment and tax revenue data. Given a long period of relative stability, this makes modeling a recovery course with confidence very difficult.

Another factor that makes long-term economic forecasting challenging at this juncture is the uncertainty about when and how the overall labor force will rebound. If Maine sets a goal to return to “full employment” (somewhere around 2.5% unemployment), but other pandemic-related structural shocks persist through 2021, it is unlikely that employment will rebound in the next five to ten years. The Maine Consensus Economic Forecasting Commission (CEFC) also recognizes this, projecting that total employment will not reach 2019 levels at least until after 2025.


In April 2020, the first full month of “nonessential” business and travel shutdowns in response to the spread of COVID-19, nearly 1-in-10 Maine workers applied for unemployment benefits. This figure was even higher than the 8.3% unemployed at the nadir of the Great Recession of 2008-09. More than 16% of Maine workers employed in January 2020 were no longer employed in April. Even by December, 20,000 fewer workers were participating in the labor force and the state was still down more than 50,000 jobs in the year.

The unique nature of this economic slump makes the unemployment rate an unreliable data point to track the recovery, so this report looks at projections of total employment. A recent slowdown in the number of jobs in Maine and nationally, as noted in November and December data, could mean that this recovery will be more elusive than current estimates suggest.

The severe shocks to the labor market from the spring shutdown have been compounded by the structural demographic problems that have plagued Maine for at least the last decade. Since 1970, Maine’s average age increased by 56% to the highest in the nation: nearly 45 years old. In a 2015 report from the University of Maine and state Department of Labor, researchers estimated that Maine’s “working age-to-senior ratio is expected to decline from an already low 3.4 in 2015 to 2.2 in 2030.” Mirroring a similar national trend, this effect on Maine’s population and workforce is expected to be worse than the United States’ average due to flat or negative population growth.

It took the Maine workforce nearly 10 years to recover from the Great Recession. With a population and labor force that does not look much different today, this recovery could take at least that long. The CEFC understands this very real possibility. That is why it recommended the state put 18% of General Fund revenues, the maximum amount allowed by statute, into the Budget Stabilization Fund (BSF) “to fully offset the revenue declines from a moderate recession.”

Federal policy responses have also contributed to the overall inflexibility of the labor force. A paper from researchers at the University of Chicago points out that perverse incentives under  expanded pandemic unemployment insurance (UI) from the CARES Act made adjustments more difficult for workers and employers. The program initially gave every unemployed worker $600 per week, designed to replace 100% of the national mean wage when combined with mean state UI benefits. As a result, two-thirds of recipients brought home more than 100% of their usual earnings; the median rate was 145% of earnings. 

Authors of the University of Chicago study propose altering emergency UI assistance to a percentage of wages, instead of a weekly lump sum, in order to avoid policy that could “hamper efficient labor reallocation…during an eventual recovery.” Unfortunately, this program was not reformed, but extended as part of the most recent federal spending package, providing $300 per week per recipient. President Joe Biden has proposed raising this weekly unemployment bonus benefit to $400 in his stimulus plan released mid-January. Congress passed additional relief legislation in March 2021 that includes a $300 pandemic UI benefit.

Check back tomorrow for Part II, which focuses on the economic effects of the pandemic and Maine’s response to it.