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The Massachusetts Economy Continues to Perform Well with Several Economic Indicators Outperforming Pre-Recession Highs

Concerns about long range growth center around available labor supply and uncertainty in Federal immigration policy

Overall the Massachusetts economy is performing quite well. Several key indicators, including total jobs, unemployment, wages, and gross state product are close to or better than pre-recession levels (see the table below). Similarly, the monthly unemployment figures continue to signal positive news for the state. The January 2017 unemployment rate for Massachusetts was 3.2 percent, 1.6 percentage points lower than the national average. The current unemployment rate is among the lowest for the state since before the 2001 recession.

Sources: U.S. BLS, Massachusetts Executive Office of Labor and Workforce Development (EOLWD), U.S. BEA
Notes:
U-3, total unemployed, as a percent of the civilian labor force (this is the definition used for the official unemployment rate);
U-5, total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers; and
U-6, total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

Despite these positive trends, there are areas of concern for the state economy, mainly centered around the current labor reserve in the state. The U6 unemployment rate, which includes discouraged workers, all other marginally attached workers, and those workers who are part-time for purely economic reasons, is still above pre-recession levels. This fact, despite the other positive indicators of economic growth in the state suggests that many of the workers who are not fully engaged in the state economy lack the types of skills employers are currently looking for in the labor market.

Related, overall labor market tightness raises some concern about economic growth in the long term. In particular, the most significant room for employment growth is among young adults aged 16-24 and for people with limited educational attainment. While the employment rates have increased for both these groups recently, there is still opportunity for gains in the near future. These are both populations with limited skills and experience. For instance, over 40 percent of workers under the age of 25 in Massachusetts work in either retail or food service, industries that offer very limited opportunities for skill acquisition or job advancement.¹

Another area of concern for the Massachusetts economy is the current uncertainty regarding federal policy on immigration. Over the last 30 years, Massachusetts has relied heavily on the foreign born as a key driver of population and labor force growth. Since 2000, the foreign-born population accounts for 74 percent of the population growth and 67 percent of the labor force growth statewide. The immigrant labor supply is particularly critical in the Greater Boston region, as well as in the Gateway Cities. Today, nearly 28 percent of the workers in Greater Boston are foreign born. Approximately 62 percent of the state's foreign born workforce is located in the Greater Boston region.²

While people often associate foreign-born labor with low-skill work, and this certainly is the case in Massachusetts as well, the Commonwealth's concentration of college and universities coupled with emerging life sciences, innovation, and technology sectors makes the state an attractive location for high-skilled immigrants. For example, nearly one-quarter of all workers in the Massachusetts technology sector are foreign born. Massachusetts and the Greater Boston region in particular have relied on foreign-born labor through the H-1B visa program to help fill critical job openings in Science, Technology, Engineering, and Mathematics (STEM) occupations.³ With that said, there is evidence indicating that some employers use lower cost foreign labor in STEM jobs that provide limited Optional Practical Training (OPT) or do not involve "critical skills" that are in short supply domestically.

Confusion and uncertainty about future immigration policy could have a chilling effect on both the current immigrant workforce (that could leave the U.S.) and the future supply of immigrant labor to Massachusetts across a wide variety of industries. There is already some evidence of a decrease in college applications from international students at the national level.⁴ As noted above, foreign born labor is particularly critical to STEM fields in the state, including health care and the technology sectors. That said, immigrant labor is also highly concentrated in other critical industries such as manufacturing (25 percent) and accommodation and food services (29 percent). In that Massachusetts relies on foreign born labor in both high skilled and modest skilled sectors of the economy, it will be important for public policy officials and local business leaders to monitor this debate closely as it continues in Washington and beyond.

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1) For more information on the young adult laborforce in Massachusetts see: http://www.donahue.umassp.edu/documents/PIC_Report-Youth_Labor_Force-Nov2016-FINAL.pdf
2) Data on the foreign-born workforce in Massachusetts was derived from the 2015 American Community Survey (ACS) Public Use Microdata Sample (PUMS).
3) For more information on the H-1B program and its relevance to the New England economy, see Robert Clifford's Policy Report for the New England Public Policy Center: https://www.bostonfed.org/publications/new-england-public-policy-center-policy-report/2014/demand-for-h-1b-visas-in-new-england-an-analysis-of-employer-requests-for-highly-skilled-guest-workers.aspx
4) https://www.insidehighered.com/news/2017/03/13/nearly-4-10-universities-report-drops-international-student-applications#.WMZxNwleCp4.twitter

For more information, please contact:
Robert Nakosteen Executive Editor, MassBenchmarks Professor of Economics, UMass Amherst 413-545-5687 nakosteen@isenberg.umass.edu
Michael Goodman Co-Editor, MassBenchmarks Executive Director, the Public Policy Center (PPC) Professor of Public Policy UMass Dartmouth (617) 823-2770 mgoodman@umassd.edu		Katharine Bradbury Co-Editor, MassBenchmarks Senior Economist and Advisor Federal Reserve Bank of Boston (617) 973-3192 Katharine.Bradbury@bos.frb.org
Mark Melnik Senior Managing Editor, MassBenchmarks Director, Economic and Public Policy Research University of Massachusetts Donahue Institute 617-287-3988 mmelnik@donahue.umassp.edu		Alan Clayton-Matthews Senior Contributing Editor, MassBenchmarks Associate Professor of Public Policy & Economics Northeastern University (617) 512-6224 a.clayton-matthews@neu.edu

MassBenchmarks Editorial Board

Frederick Breimyer, Federal Deposit Insurance Corporation (retired)
Lynn Browne, Brandeis University; Federal Reserve Bank of Boston (retired)
Mary Burke, Federal Reserve Bank of Boston
Peter Doeringer, Boston University
Robert Forrant, University of Massachusetts Lowell
Yolanda Kodrzycki, Federal Reserve Bank of Boston
Frank Levy, Massachusetts Institute of Technology
Alicia Sasser Modestino, Northeastern University
Christopher Probyn, State Street Bank
James Stock, Harvard University
David Terkla, University of Massachusetts Boston
Paul Willen, Federal Reserve Bank of Boston

For timely and comprehensive analysis of the Massachusetts economy, please visit MassBenchmarks at www.massbenchmarks.org.