Five on the Future

Every year Mainebiz surveys five experts on what's ahead for the coming year. We've seen major changes in Washington, with President-elect Donald Trump taking office later this month. But regardless of what happens in Washington, Maine still faces some of the same challenges: lack of a workforce, a stagnant population and economic disparity from south to north. So we wanted to know, what's ahead?

Q: What are some areas of growth in Maine?

Amanda Rector: There have been intriguing developments lately in the entire range of food and beverage-related industries in the state — everything from farming, aquaculture, food production, breweries and distilleries, restaurants and more. Maine was well-placed to take advantage of the increased interest in high-quality, locally sourced and sustainable foods. The state also saw a stellar summer tourism season, led by continued low gas prices, a stronger national economy and good weather, although the lack of rain hurt farmers this year. Regionally, the southern parts of Maine continue to see the strongest growth in the state, as industries in other parts of the state have been harder hit by population loss, high energy prices and structural changes in the economy.

John Traynor: The health sciences-services area is very strong in Maine already so leveraging that strength is probably the path of least resistance. Many municipalities around New England are building research corridors alongside their leading hospitals to foster companies involved in pioneering medical research. Maine has tremendous public and private colleges and universities. Holding on to those graduates should be a top priority. Creating the entrepreneurial environment to foster business startups may result in the next Google being based in Maine.

Jonathan Reisman: I don't expect much overall growth in Maine's economy next year. Inertia would suggest a continuation of the past lagging and anemic growth amid sectoral and geographic redistribution. The national economy will be buoyed by increased economic freedom from regulatory relief and tax reform, but crony capitalism and protectionism will likely temper those gains. Maine's economic freedom and economy will be damaged by successful referenda raising the minimum wage and taxing the rich.

Rachel Bouvier: In my line of work, I see several trends that excite me: the surge in interest in renewable energy, the innovation that's occurring in Maine surrounding the wood products industry and growth in local, sustainable farming, including aquaculture. Maine's comparative advantage is its natural capital — land, forests, water. The struggle will be how to harness that natural capital in a way that doesn't jeopardize future growth.

Charles Lawton: To me, the overriding concern is we can't fill everything we have. If you look at the U.S. Department of Labor 10-year projections, we can't even fill the replacement jobs. Even if you take one of the hardest hit industries, the paper industry, how are we even going to make the paper and fill the jobs we have left? That relates to labor-force participation. The number of workers, particularly 25- to 55-year-old males, is dropping. Many are not even looking for work. That speaks a great deal about the situation. People are out there, but it's not just putting an ad in the paper. HR people use the term 'talent acquisition.' You can't walk down a street without seeing 'help wanted' signs. With minimum wage, the cow's out of the barn. People are already paying more, and not just in wages. You see Starbucks paying people's college tuition because it's cheaper to keep someone than look for new employees. Retention is a big issue.

Q: What effect will the Donald Trump White House have on the economy?

Amanda Rector: Nationally, there is optimism that the Trump administration will have a positive effect on the economy. The two largest contributors to this optimism are proposals around tax cuts and infrastructure spending. Maine's economy would benefit from increased growth in the national economy. There is still a great deal of uncertainty about the specifics of the new administration's policies, so it is yet to be seen how large the economic boost might be. There are also questions about which of the existing federal policies will either be repealed or changed. Without the specifics, it's hard to guess what the effects might be. But some of these changes — to the federal overtime rule, for example — could benefit Maine businesses.

John Traynor: While it is too soon to tell how much of Donald Trump's campaign rhetoric was bluster and how much will be implemented, we do see a pro-business bias to his cabinet appointments so far. Most economists have raised their estimates for GDP growth in 2017 based on the potential for lower taxes and lessened regulations. There is probably too much optimism around these changes as it will take time to implement any of them. We therefore have raised our expectations for next year only slightly. The shift in overall economic policy from a Fed-driven monetary stimulus to a legislatively driven fiscal stimulus is a big step in the right direction and one that should lengthen the expansion.

Jonathan Reisman: President Trump is poised to significantly increase economic freedom and hence growth in the United States, but those gains will likely be tempered by potential trade wars and crony capitalism. Energy, environmental and social engineering regulatory relief, tax reform, executive order reversals and a restoration of the presumption of the rule of law have the potential to boost economic growth to better than 4%, even with a crony capitalism penalty. Trade and foreign policy are concerns. Chinese investment is responsible for the expansion of forest product manufacturing and employment in Washington County. The Port of Eastport is engaged in international trade.

Rachel Bouvier: It's difficult to say. President-elect Trump didn't give too many specifics during his campaign, and even now he seems to be backing away from some of his more overheated rhetoric. Certain industries may be comforted by his tough talk on trade, but our consumption patterns and way of life are now so global in nature that a trade war could very much hurt our standard of living. My specialty is environmental and natural resource economics, and so I tend to look at the economy more broadly. I'm very concerned about a Trump White House's effect on the environment, specifically climate change, and the weakening of regulations that were passed to protect our health and our children's future. Climate change has the potential to negatively affect our fisheries and our forests, as well as what economists call the ecosystem services that depend on them. And reducing emissions from burning fossil fuels has other benefits as well. For example, Maine has the highest childhood asthma rate in the country, creating an economic burden on caregivers and the health care system, as well as affecting children's potential.

Charles Lawton: He's shaken everything up and shown the conventional wisdom isn't going to work. The question is whether the logjams will get broken up or do we just have another four or eight years like we had in the Obama Administration where everything gets stonewalled. If that's the case, then businesses just struggle along as they always do. Whatever issues plagued them for the past eight years will continue. That could also go for trade wars, labor issues or economic development.

Q: What impact could the new legislation (overtime rule, minimum wage, marijuana legalization) have on businesses?

Amanda Rector: Both the minimum wage increase and the 3% surtax on incomes over $200,000 could have considerable negative effects on Maine's economy. Businesses will see labor costs increase dramatically as the minimum wage increases, especially those in the hospitality industry where many employees are tipped workers. As a result, hours for workers will be cut or workers will be let go as they become too expensive for the business to maintain. Other businesses may be forced to reduce benefits such as health insurance coverage to cover the increased wages. Prices will likely increase for many products and services as the higher wage costs are passed on to the consumer. Many of the taxpayers who will be hit by the 3% surtax are actually pass-through businesses such as sole proprietorships and S corps. Increasing their tax burden will reduce the funds available for capital purchases and further investments in the business. Individuals facing a steep hike in their income taxes may decide to relocate out of state. The federal overtime rule is up in the air now, so there is a great deal of uncertainty for businesses on this front. Uncertainty around regulations is never a good thing for business growth, but a change to the rule could help Maine businesses that would otherwise be faced with having to change their employment structure.

John Traynor: The key issue facing business is an overall lack of confidence in the strength and sustainability of the economic expansion. This can be seen in the low level of capital spending by businesses on plant and equipment. The filter we will review all potential changes to legislation will be to see if it raises business confidence. Many of the recent work rule changes implemented by the Department of Labor have been overruled in the court system so the potential for the Trump administration to put its own stamp on these hot button issues is timely and will be watched carefully.

Jonathan Reisman: The stayed federal overtime rules, the increase in the minimum wage and the surtax on the rich will all reduce economic freedom and economic growth. Increasing the cost of labor will result in less labor hired and higher prices for the things that labor produces. Some workers will gain at the expense of others who get fewer hours or are replaced by machines or not at all. Some highly paid professionals and successful entrepreneurs and couples will choose to leave Maine. Hopefully the federal overtime rules will not be defended by the Trump administration and will die an unlamented death. Should they be implemented, they will raise the cost of labor without any accompanying increase in productivity. With an unemployment rate below 5%, this may not be a great concern, but the historically low labor force participation rate, even in demographically challenged Maine, suggests caution. The indexed minimum wage increase and the 3% surtax on the rich are direct examples of 'democratic' socialism… The one referenda initiative that actually increased economic freedom was the legalization of recreational marijuana, regardless of what Jeff Sessions may think.

Rachel Bouvier: Maine's minimum wage hasn't changed since 2009. Since then, the cumulative rate of inflation was about 11%. So the minimum wage has declined in real terms since then. It doesn't keep up with the cost of living. The fear of many economists is that raising the minimum wage will create unemployment, as it dampens the demand for labor. That may be true in certain sectors. But the other side of the equation is that it will increase the size of the labor pool, as more workers will be willing to look for a job. I recently spoke to a young mother who was debating about taking a full-time job. She ultimately didn't because she would be paid less than the cost of child care. Something's wrong with that equation. As for the legalization of pot: I'm all in favor of taxing economic “bads” — cigarettes, alcohol, pollution — rather than economic “goods,” such as employment and income. I fully support directing our police resources to more public safety issues.

Charles Lawton: Marijuana has created unforeseen circumstances in that a lot has come down to local government to decide planning, zoning and NIMBY issues. There's also the issue in that banks won't let you borrow money, so that constricts things. You have people with suitcases full of cash driving around in cars. With the overtime rule, Trump could overturn it with an executive order. The issue still gets back to talent attraction and retention: the companies like Unum, WEX and MaineMed that are already growing and planning to grow will work what out they need [to offer in compensation] to get the right people.

Q: What are some of the biggest challenges and opportunities ahead?

Amanda Rector: Maine's demographic situation continues to be one of the most critical challenges facing the state. Lack of population growth and an aging population are limiting economic growth in the state. Likewise, high energy prices, especially for the industrial and commercial sector, make it difficult for businesses to be competitive in today's global economy. The opioid epidemic has been putting a strain on many different parts of the state and will need to be addressed by all levels of government. Businesses in Maine are also being faced with the effects of the recent referendum, which will put tremendous strain on many businesses in regions of the state and industries that can least bear it. There are some opportunities for the state. The continued investment and expansion of the facilities at the International Marine Terminal in Portland will provide access to new global markets for Maine businesses. The future cold storage facility there has the potential to provide substantial economic benefits.

John Traynor: One of the biggest challenges is also our biggest opportunity: education. As I travel around New England I hear only one complaint from business leaders: they cannot find enough qualified employees to full current openings. Our renewed focus on STEM education and work being done in community colleges to build the work force of tomorrow is critical to our success. In the 1950s it was possible through sheer brawn to work your way into a good middle class life. Today it will take brain power to think your way into the middle class.

Jonathan Reisman: Taxing the rich and raising the minimum wage are policies the people of Maine have chosen by majority vote. I'm not a fan of democratic socialism, and I can only hope that Mainers come to recognize that voting for socialists and socialist policies will lead, as it did in Venezuela, to chaos, poverty, and crumbling institutions and infrastructure.

Rachel Bouvier: In my view, there are two, one for the urban southern part of the state, and one for the more rural areas. For the south, we need to figure out a way to welcome growth while keeping housing affordable and minimizing stresses on our ageing infrastructure. Infill development is the best way to do that. For the rural areas, we need to promote economic growth while at the same time maintaining the quality of Maine's natural environment.

Charles Lawton: The two most obvious things are higher education and education in general, particularly its link to the workforce. Very few people can drop everything and get a degree. We need to offer more internships; we need more than a 'take your kid to work' approach. We need a less symbolic relationship between education and the workplace. Thornton Academy offers internships with Arundel Machine Works and Pratt & Whitney where students receive training and skills they can use. We need more training for occupational specialists. HR professionals need to look at their workers and say, 'How can I advance the careers of these people?' Education needs to be more bite-sized in scope and cost.

Q: How can Maine increase its labor pool?

Amanda Rector: Maine needs to use a multi-faceted approach to address the workforce needs now and in the coming years. We need to make sure those people already here who would like to work and are unable to find suitable employment can become employed. This might include people with disabilities, veterans, older workers and displaced workers. We also need to attract more young workers to the state. To accomplish this, Maine needs to implement policies that allow workers and businesses to prosper. Maine is competing not just with the rest of the country for these workers and businesses but with the rest of the world. Things like tax policy, lower energy costs and infrastructure improvements are important pieces of the puzzle for making Maine more competitive. In some ways, it's a chicken-and-egg situation: people move where they know they can find a well-paying job and businesses locate where they know they can find skilled workers. We have to tackle both sides of the issue at the same time.

John Traynor: Maine has the oldest median age in the nation and was one of only two states, the other being West Virginia, where deaths outnumbered births between July 2014 and July 2015. One potential answer is to make use of legal immigration. Only 3.5% of Mainers are immigrants versus 13.1% for the U.S. economy. There are many qualified workers that I am sure would love to find jobs in Maine if the connections could be made.

Jonathan Reisman: The obvious answer, endorsed by the Maine State Chamber of Commerce, is immigration. Immigrant communities bring energy and entrepreneurship along with sometimes significant cultural stress. Attracting more productive immigrants to Maine, be they Muslim, Christian or Gaian, will require a more welcoming attitude and an improvement in the state's economic freedom and prospects. Without jobs and opportunity, immigrants will neither come nor be welcomed.

Rachel Bouvier: While Maine's unemployment rate is lower than it is nationally, that figure masks some unpleasant truths. Our labor force participation rate has been declining for the past decade or so, partly due to the aging of Maine's population, but also partly due to 'prime age men' leaving the workforce. Our biggest challenge is to boost that labor participation rate, through education and job training. We also need to welcome 'new Mainers' with open arms. Our 'native' population is declining, not growing, so if we're going to survive, we need to do everything we can to support them. Again, our greatest asset is our natural environment and way of life. Increasing broadband access and supporting remote workers, like through co-working spaces, can encourage people who vacation here to think, 'we could live here.'

Charles Lawton: Immigration plays a major role because you have so many people who have received professional training in other countries. We need to work to get people certified here and help with the language barriers. With people moving state to state, it's often the 'trailing spouse' issue and that gets into high-quality schools, affordable housing and so on. But we could also market Maine as an alternative to the congestion of Washington, D.C., New York or Boston.