NAICS Implementation is Underway
By Doreen LeBel, Research Analyst Supervisor, DOL

After three years of surveying employers to classify their business activity using the North American Industry Classification System (NAICS) principles, the Connecticut Department of Labor and the U.S. Bureau of Labor Statistics (BLS) have completed the conversion from the Standard Industrial Classification (SIC) system. Beginning with data for 2001, employment and wages covered by unemployment insurance will be compiled under NAICS. To help our data users make the transition from SIC to NAICS, the Connecticut Department of Labor will also compile 2001 data using the SIC system. The 2001 national data series compiled by BLS, however, will be on a NAICS basis only.

NAICS

The following table on page 3 shows Connecticut's employment compiled by major industrial grouping under the two classification systems. These principles should be kept in mind as you review the data:

1. The NAICS is a production-oriented system. Production units that use identical or similar processes are grouped together. The SIC groups businesses by their end products and services.

2. NAICS industry sectors were developed giving attention to new and emerging industries, service industries in general, and industries engaged in the production of advanced technologies.

3. There are twenty NAICS industry sectors identified with a six digit numerical code, compared with ten SIC major industry divisions that used a four digit numerical code.

4. Although time series continuity was maintained wherever possible, there will be breaks in series with the implementation of NAICS.

Recognizing the expansion and growing economic importance of the Service industries, NAICS provides a more detailed picture of these industries than was possible under SIC. Forty percent of Connecticut's employment is classified as in the Service industry division under SIC. Using the production-oriented principles of NAICS, some business activities that were not considered service activities under SIC are now classified in one of the nine NAICS service sectors. In addition, the corporate headquarters of companies are now classified as service activities under NAICS. Formerly, under SIC these business establishments were classified according to the business activity of the enterprise they served. Collectively, the nine NAICS service sectors make up one half of Connecticut's employment. Of the service sectors, Healthcare and Social Assistance (13.7%) and Educational Services (9.1%) account for the largest shares of statewide employment.

Impact on Industry Employment

This shifting of employment to service sectors under NAICS results in declines in other sectors of Connecticut's economy. The biggest effect is in Retail Trade with the reclassification of restaurants and other food service into the service sector. Under NAICS, Retail Trade makes up 11.6 percent of total employment compared with 16.6 percent under SIC.

Changes in the definition of Wholesale Trade establishments result in a small decline (4.8% down to 4.1%) in this sector's share of total employment under NAICS. Retail Trade and the service sectors picked up most of these reclassified firms.

The SIC industry division Transportation, Communications and Public Utilities (5.6% of total employment) is broken out into two sectors, Utilities, and Transportation and Warehousing, which combine to make up 3.9 percent of employment under NAICS. The communications component has been moved to the NAICS Information Services sector. This sector, which also received Publishing from the SIC manufacturing division, accounts for 3.0 percent of employment. Manufacturing's share of total employment drops from 15.8 percent under SIC to 14.1 percent under NAICS.

Landscaping and Veterinary Services are treated as service activities under NAICS, rather than agricultural as under SIC. In Connecticut, with limited agricultural activities, the result is a significant decline in the number of firms (-88%) and employment (-70%) classified as agricultural under NAICS.

The proportion of total employment remains about the same for the remaining industry groups under NAICS. Although Finance, Insurance and Real Estate is broken out into two sectors under NAICS, combined they continue to represent 8.7 percent of total employment. Construction (3.8%) and Public Administration (3.7%) also retain the same portions of total employment. Mining continues to make up a very small part of the State's employment.

Impact on Industry Wages

Industry wage studies will also be enhanced under NAICS, especially in the important service sectors. The detailed breakout of services under NAICS gives a much clearer picture of the range of wages paid in these sectors, from a low of $289 in Accommodation and Food Services to a high of $2,228 for Management of Companies and Enterprises. Under SIC, the average weekly wage for Services is $755.

The change in classification of corporate headquarters and administrative offices into the service sectors should also help to improve wage analyses in the other sectors, as their occupational make-up is different than that of the operating establishments. In addition, it should also help eliminate some of the problems associated with executive bonuses that tend to skew wages upward. This effect is most apparent in Mining, a small industry in Connecticut that shows an average weekly wage of $1,245 under SIC that drops to $857 with the move of corporate headquarters out of the division.

The breakout of Transportation, Communications and Public Utilities also results in a clearer picture of wages in those industries. Under SIC the average weekly wage is $1,035, while separately the average weekly wages paid range from $1,754 for Utilities and $747 for Transportation and Warehousing workers. The breakout of Finance, Insurance and Real Estate, with an average weekly wage of $2,561, into two sectors also highlights the difference in wages paid, from $2,752 in the Finance and Insurance sector to $880 in Real Estate, Rental and Leasing.

The restructuring of industry groups under NAICS results in a decline in the average weekly wage for manufacturing by $90, but an increase of $74 in retail trade. The remaining industry groups show slight changes in average weekly wage under NAICS. Agriculture, Forestry and Fishing and Public Administration wages are slightly lower, while Construction and Wholesale Trade are somewhat higher.

Looking Forward

Eventually, all industry data will be produced based on NAICS. Our monthly nonfarm employment estimates will be made using the new industry classification structure beginning in January 2003. Data on occupational employment and mass layoffs will, in time, also use NAICS. The transition period is likely to present some challenges. Despite plans to reconstruct data time series under NAICS, in some cases, the NAICS changes are so significant that developing historical data on the new system will be difficult and there will be breaks in many time series. In the long run, however, the implementation of NAICS will allow us to present a more accurate picture of Connecticut's changing economy. We plan to highlight some of these new industry sectors in future issues of The Connecticut Economic Digest.

For an explanation of how the Bureau of Labor Statistics is implementing NAICS in its statistical programs and a look at national employment and wage data under NAICS, please see the articles, "Implementing the North American Industry Classification System at BLS," and "A First Look at Employment and Wages using NAICS," in the December 2001 issue of the Bureau of Labor Statistics' publication, Monthly Labor Review, at http://stats.bls.gov/opub/mlr/mlrhome.htm.

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New Beginnings
By Joseph Slepski, Research Analyst, DOL

In the Beginning

Every large city in Connecticut had at least one of them, a huge manufacturing complex. The site would encompass hundreds of acres. The operations would often run around the clock, twenty-four hours a day, seven days a week, 365 days a year. Every resident of that city worked or had a relative who worked at that complex. The companies manufactured products that were essential to the nation and even the world. Aircraft, submarines, ball bearings, military weapons, instruments and timepieces were just some the goods that were rolled off the assembly lines of these factories. From the latter part of the nineteenth century through most of the ensuing hundred years, these sprawling complexes were the engines that drove the local economy and in many cases became the host city's identity.

Death

In the last three decades, though, circumstances changed. The end of the cold war led to large decreases in defense spending. New technologies came about that rendered old operations inefficient and/or impractical. Manufacturing operations that remained were either greatly reduced or shipped out of state, or in some cases, out of country for a wide variety of reasons. At the same time, better roads, increased numbers of automobiles and suburban development led many individuals and families to move out of the cities and into the suburbs. Many of the old factories were therefore forced to go out of business. The cities were then faced with a problem: what to do with these huge structures?

It was initially thought that there was little use for these complexes; after all, manufacturing operations were down all over. Some of the buildings were marketed solely for manufacturing, and in some cases small factories moved into some of these large structures. As a whole, this approach did not work. The cities were then stuck with these properties that were not generating tax revenue or creating jobs. Another problem was that to attract non-industrial businesses to these properties would entail massive clean-up costs that were thought to be prohibitive. These factors created huge challenges.

Resurrection

The above mentioned occurrences led to unique collaboration between business and all levels of government - federal, state and local. Clean-up costs were shared and payment schedules were leveled off. The private and public sectors then went about the business of trying to make these old facilities useful and profitable again. Among the first projects was the reclamation of the Olin building in New Haven. Behind the efforts of business and government came Science Park. This facility, now more than twenty years old, is the home of more than one hundred small companies in an incubator type setting. These companies are all start-ups and are run by medium income level individuals. The companies utilize a centralized staff, which handles all of the administrative functions. Employees of the companies are residents of the neighborhood where Science Park is located.

In 1997, the Brass Mill Center mall opened in Waterbury with more than 2,000 employees. This shopping mall is built on a former manufacturing complex which many thought would be unusable for future business. In 1998, the former Jenkins Valve site in Bridgeport was transformed into Harbor Yard, home of the Bridgeport Bluefish baseball team. This stadium has drawn over one million fans in just three years, and in October 2001, this site welcomed professional hockey's Bridgeport Sound Tigers in the adjacent Bridgeport Arena.

In the summer of 2000, the old Veeder Root plant in Hartford became the site of the seventeen-screen Crown Theater complex. In the fall of 2000, the former Farrel operation in Derby became the home of a massive shopping plaza featuring a Home Depot, creating hundreds of jobs. In June of 2001, the Pfizer pharmaceutical company opened a 750,000 square-foot biomedical research facility on a 22-acre former "brownfield" site on the Thames River in New London. The area had been used for various industrial purposes in the past century before Pfizer undertook its environmental remediation. Anyone driving through East Hartford can see the construction of the football stadium for the University of Connecticut. This site was the former location of the airport for Pratt and Whitney Aircraft. These examples demonstrate how a joint effort between the private and public sectors can lead to old, unused and unwanted properties being transformed into entirely new enterprises, leading to increased sales, tax revenues and jobs. The successes of these undertakings are leading an ever increasing number of businesses to invest in similar properties. Connecticut's old industrial complexes are not withering on the vine; they are being reborn with grand plans and bright futures.

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Government Sector Trends
By Jungmin Charles Joo, Associate Research Analyst, DOL

Connecticut's government sector employment has been growing along with the private sector's over the years. Yet its share of total employment has not really changed from a quarter of a century ago. This sector's employment made up about 13 percent of the total for all industries - federal jobs, one percent; State, four percent; and local, eight percent, in 2000 - essentially the same proportion as in 1975.

This article will highlight government's employment and wage trends for the State and counties, drawn from data collected from all employers registered with the Unemployment Insurance (UI) program. Unlike the nonfarm employment estimates developed monthly from a sample of employers, this source classifies Indian tribal business employment, including casinos, in the private, rather than government, sector.

Long-Term Trends

Since 1975, overall government employment has grown significantly, particularly at the State level (chart). Dramatic increases in the number of jobs occurred in the mid-eighties. Then, employment fell in the early nineties, during the statewide recession, before rebounding to its present level. Federal government jobs increased and then declined to about the 1975 level. Local government employment increased 22 percent between 1975 and 2000, but the largest job gain in the last 25 years has been at the State level with a 37 percent increase. However, it is worth repeating, their shares of total State employment in 2000 were roughly the same as they were in 1975.

Employment

Since 1996, the private sector's employment has increased 7.4 percent (Table 1). The overall government sector in Connecticut gained jobs also, but slightly below at 6.8 percent. The federal government actually reduced jobs during the 1996-2000 period (-0.8 percent), mainly due to the shutdown of FDIC offices that were set up during the banking crisis in the early nineties. Local government, on the other hand, added jobs faster than the private sector, with an increase of 9.5 percent.

All but New London County gained jobs between 1996 and 2000 (Table 2). The fastest growth occurred in Tolland County, while the largest growth in the number of jobs occurred in New Haven County. Hartford County had the largest number of employees, accounting for nearly one third of total government jobs in the State.

Wages

As Table 1 also shows, government's pay increase was slower than the overall private sector's from 1996 to 2000. In 1996, the annual average wage per worker in all of government was higher than the wage in the private sector, led by the federal government sector. But by 2000, the private sector wage surpassed that of government. In fact, the average annual wages of workers in all levels of government were below the private sector's in 2000.

All the counties posted increases in annual average wages of government employees since 1996, with Middlesex County leading the growth rate. In 1996, Fairfield County government employees were paid the highest average wage of $39,629, but Hartford County topped at $44,024 in 2000. In both years, Windham County workers averaged the lowest wage rate.

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Industry Cluster
New Marketing Campaign and BioScience Office Announced

The Governor's campaign promoting Connecticut as a high-tech "hot spot," worthy of California's Silicon Valley and Boston's Route 128, was announced in December along with a new Office of BioScience. As part of Connecticut's effort to boost the bioscience industry, the campaign highlights both the bioscience and information technology (IT) industries that exhibit strong growth in the State. Bioscience research and development expenditures alone exceed more than $3 billion. The campaign extends the You Belong in Connecticut effort. 

The new Office will be one of the first in the country and led by Harry H. Penner, Jr., former President and CEO of Neurogen Corporation, former Co-Chair of CURE, and currently Vice Chair of the Board of Governors of Higher Education and Chair of Rib-X Pharmaceuticals Inc. of New Haven. Housed within DECD, the Office was catalyzed by participation in projects such as BIO 2002, the largest biotechnology event in the world. 

Serving as full-time staff in the new office will be Kevin Crowley, currently DECD Director of Business  Recruitment. Gary Wilson, Ph.D., CURE Managing Director, Scientific Programs and formerly Director of Science and Technology for the North American Pharmaceutical Division of Bayer Corporation, will serve the office on a part-time basis.

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Housing Update
Despite Economic Slowdown, Permits Stay Strong

Commissioner James F. Abromaitis of the Connecticut Department of Economic and Community Development (DECD) announced that Connecticut communities authorized 636 new housing units in December 2001, a 6.4 percent increase compared to December of 2000 when 598 units were authorized.

The Department further indicated that the 636 units permitted in December 2001 represent a decrease of 9.9 percent from the 706 units permitted in November 2001. The year-to-date permits are down 0.6 percent, from 9,311 through December 2000, to 9,254 through December 2001.

"Despite a slowdown in the overall economy, housing permits totals for 2001 showed remarkable resiliency by nearly keeping pace with 2000 levels," said DECD Commissioner Abromaitis.

Half of the ten labor market areas demonstrated increases in new housing authorizations compared to a year ago. At yearend, Stamford led all Connecticut communities with 394 units, followed by Norwalk with 328 and Danbury with 236.

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