Economy Highlights

THE CONTEXT

KEY TRENDS AND FINDINGS

MAJOR ACCOMPLISHMENTS AND INNOVATIONS 2002 - 2004

REMAINING CHALLENGES

COMPETITION

THE CONTEXT

Boston anchors a regional economy of five million people that extends from Southern New Hampshire to Worcester, Massachusetts and Providence, Rhode Island — making up the "Boston Consolidated Metropolitan Statistical Area," according to the US Census Bureau. At slightly less than 600,000 inhabitants, Boston is the 20th largest US city, yet it has one of the nation’s highest concentrations of population, jobs and income, doubling the size of its population each day as commuters flow into the city to work. Boston’s historic character, world-class museums, reinvigorated cultural sector, new Convention and Exhibition Center, hotels, extensive transit system, international airport and deep-water port, vibrant neighborhoods and natural beauty also make it a destination for tourists and the gateway to New England.

Completion of the Big Dig is reconnecting the city to its waterfront, Harbor and island parks — and making land in the heart of the old city available for a range of exciting new cultural facilities, parks and amenities. Revitalized neighborhood business districts reflect Community Development Corporation (CDC) activity, the City’s Main Streets Initiative, and a spate of new supermarkets, while major new commercial development is transforming many neighborhoods and strengthening Boston’s light industrial sector. In past decades, Boston has shifted from a manufacturing economy to a knowledge-based economy rooted in the research and development emerging from the area’s institutions of higher education and health care as well as the financial, governmental, business, professional and human services sectors. This shift is also reflected in a dynamic and growing nonprofit sector.

The knowledge economy strongly favors educated workers, while the city’s high cost of living, driven by housing costs, has put intense pressure on households headed by those with less education. Growing income inequality is also expressed in disparities in health outcomes. Despite these challenges, one in three Bostonians is between the ages of 20 and 34, and the city’s percentage of college-educated residents is one of the highest in the nation. Boston is also increasingly ethnically diverse, with one-quarter of its residents foreign born. Despite unprecedented economic expansion in the late 1990s, Boston’s economy today reflects the impacts and pressures of globalization and a recent economic downturn, with increasing competition, high office vacancy rates, and, in the past several years, the off-shoring of start-ups and jobs, a spate of mergers, and the sale of Boston’s largest and most iconic corporate headquarters to companies located elsewhere, creating a sense of uncertainly about the future.

KEY TRENDS AND FINDINGS

The same forces of technological innovation and globalization that drove the economic boom in Greater Boston in the 1990s are continuing to evolve, but now are creating a more competitive environment for Boston and the region. Greater Boston continues to offer great competitive advantages through its concentration of higher education, knowledge workers, research and development capacity, and venture capital. Yet lower-cost US regions are competing for knowledge economy jobs. In addition, the economies of China, India, and Eastern Europe, with growing numbers of highly-educated knowledge workers, particularly in engineering and the sciences (where the US is weak), are attracting investment capital, research and development capacity, and increasingly sophisticated jobs and industry sectors. Greater Boston is also experiencing the effects of rising rates of industry consolidation, outsourcing, and off-shoring.

Boston has one of the highest educational attainments rates in the nation — the result of a four-decade trend reflecting a shift from a manufacturing economy to a knowledge economy — and educational attainment levels are driving individual economic outcomes. As the Boston economy has progressively shifted away from its traditional manufacturing base, it has disproportionately favored those best prepared to access professional jobs. Between 1989 and 1999, real mean income in Boston rose by 25% for those with a bachelor degree or higher, but fell by 3% for individuals with only a high school diploma or some college education. Higher education attainment rates rose in Boston from 10.4% in 1970 to 35.5% in 2000, according to the US Department of Commerce, ranking Boston 5th among large US cities for bachelor’s degree holders. (see indicator 3.5.1)

Consumer prices in Metro Boston are rising faster than the metropolitan average, making Greater Boston one of the most expensive regions in the nation and making it difficult for many households to make ends meet. Metro Boston’s Consumer Price Index rose faster than the urban average every year between 1997 and 2003. Prices increased for shelter, food and beverages, transport, energy, apparel, and durables. Medical costs rose more than twice as fast as any other component.

Following the tech bubble bust in 2000, Boston has been losing jobs, but the trend is improving. The Boston Redevelopment Authority (BRA) reports that between 1993 and 2000, Boston added over 110,000 jobs and grew at an annual growth rate of 2.2% to reach 688,079 jobs — a record high. Yet the city began losing jobs early in 2001. Between mid-2002 and mid-2004, Boston lost about 25,000 payroll jobs, or 5%, but the trend is improving, with a decline of 19,000 from 2002 to 2003 but only 6,000 from 2003 to 2004. While many recent job losses have been in high tech and other professional fields, generally the health and education sectors — and the nonprofit sector — have seen gains. Unemployment rates in the City of Boston went from a 1993 high of 6.6% to a 2000 low of 2.8% to 6% in 2003, declining slightly in 2004. Metro Boston’s unemployment rate in 2004, at 4.8%, was lower than the national rate of 5.7 %. However, continuing out-migration may be reducing pressure on the unemployment rate. (see indicator 3.3.2)

Corporate acquisitions, law firm consolidations, and financial firm mergers have led not only to a loss in jobs and business leadership but to a sharp increase in available commercial sublease space. In a continuing trend reflecting the impact of globalization, a growing number of Boston’s largest and most iconic corporations — from Fleet Bank to the John Hancock Insurance Company to Gillette — have been sold to companies headquartered elsewhere. Spaulding & Slye Colliers reports that available office space in Boston was at a high of 20% in the third quarter of 2004.

Newcomer immigrants account for essentially all of Boston and the region’s population and workforce growth.  Boston's population grew by less than 15,000 over the 1990s. However, the number of recent foreign newcomers to Boston (those who arrived in the US between 1990 and 2000), increased by nearly 74,000 over the decade. Without those newcomers, Boston's population would have declined by about 59,000. Foreign immigration is also driving population and workforce growth in the entire region. According to the Census Bureau’s American Community Survey, the Greater Boston Primary Metropolitan Statistical Area (PMSA) gained about 60,000 newcomers between April 2000 and July 2003. And according to the Harvard University Civil Rights Project Metro Boston’s primarily white workforce gained 50% in Latino workers and 70% in Asian workers over the 1990s. Latinos and Asians led the area’s workforce growth between 1999 and 2002.

ECONOMIC CONTRIBUTIONS BY SECTOR

Jobs in knowledge-based industries requiring high skills grew by 29% in Boston between 1992-2000, compared to 28% in the nation as a whole. Finance, insurance, and real estate have accounted for most of the city’s job growth since 1970. Service industries — both high- and low-paid — represented 68% of Boston employment in 2000, up from 63% in 1990, according to an analysis by the BRA. In contrast, between 1970 and 2000, Boston has lost nearly 36,000 manufacturing jobs, shifting manufacturing’s share in total city employment from 12% in 1970 to 5% in 1990 to 4% in 2000.

Greater Boston’s eight research institutions generate significant economic multipliers. A 2003 Appleseed report found that in 2000 — the height of the high tech boom — Greater Boston’s eight research universities provided a $7.4 billion boost to the regional economy, including work for 48,750 university employees and 37,000 additional workers in the region, a talent pool of more than 31,900 graduates, research that resulted in 264 patents and 280 commercial licenses of technology, 41 start-up companies, and continuing education for 25,000 non-degree students.

Total federal R&D spending in the state’s academic and nonprofit research institutions climbed to more than $4.6 billion in 2002, placing Massachusetts second only to California among Leading Technology States (LTS) in absolute spending, according to the Massachusetts Technology Collaborative’s 2004 Innovation Economy Index. However, Massachusetts’ share of all university research has been falling. The share of federal research funding awarded declined from nearly 7% in 1985 to 5.5% in 2001, according to a 2004 Mass Insight report. The nine high tech "innovation economy" sectors tracked by the Index — the growth tip of the Massachusetts economy — suffered a total job loss of about 4% between 2002 and 2003.  (see indicator 3.2.1)

Boston’s health services sector represents more than one out of six city jobs, with 103,835 people employed in 2003, including all employment in Boston’s 22 inpatient hospitals, 25 community health centers, nursing homes and community, family, and child services. 

Boston’s large nonprofit sector, which includes its colleges and universities, teaching hospitals and major cultural institutions as well as community-based organizations and civic institutions, provides economic stability to the city and the region. Boston and the surrounding municipalities of Cambridge, Newton, Somerville and Brookline contain more than 25% of the state’s nonprofit workforce, compared to less than 15% of the state’s workforce overall, according to a study by MassINC. The nonprofit sector employs 13.4% of all workers in Massachusetts, compared to 6.9% nationwide. Nonprofit employment in Massachusetts grew by 8.6% between 2000 and 2003, while total state employment fell by 4.1%

The "creative economy" and tourism sector are increasingly recognized for their multi-billion dollar contributions to the Greater Boston economy. Seminal studies in the late 1990s highlighted the economic importance of Boston’s creative economy of arts and cultural organizations and private institutions, which provide a strong draw for tourism to the region. The "creative cluster" of enterprises and individuals supplied 3.5% of New England’s total job base and an annual payroll of about $4.3 billion in 1997, according to a 2000 New England Council report. The Food/Travel/Entertainment sector in Boston expanded employment by 49%, nearly double the national rate, between 1992 and 2000. Greater Boston’s leisure and business visitors increased from 14.56 million in 1999 to nearly 15.88 million in 2003, generating a direct economic impact of $4.22 billion in 2003 alone, according to the Greater Boston Convention and Visitors Bureau.

A network of community development corporations (CDCs) supporting neighborhood businesses and entrepreneurs is bringing economic vitality to Boston’s neighborhoods. The "Community Business Network"— comprised of 10 CDCs, such as the Asian CDC and Dorchester Bay EDC — served 730 entrepreneurs, secured $1,798,200 in loans, created 206 Boston area jobs and provided technical assistance to encourage the start up of 30 businesses and the expansion of 19 others last year, according to the Massachusetts Association of Community Development Corporations’ 2004 annual report.

The Mass Software Council identified 2,781 total companies with revenues of $10.5 billion in the state in its 2004-2005 Complete Guide to the Massachusetts Software Industry. Some 66% of companies surveyed planned to expand workforce over the next 6 to 12 months, and 31% reported staff increases of 20% or more. Small, entrepreneurial software developers and distributors are major players in the state’s software industry, according to a 2003 Mass Software Council survey. About 65% of state software companies surveyed have 25 or fewer employees; 75% have $5 million or less in revenues; and 13% are owned by women or minorities. This compares with 11% of software companies surveyed with more than $50 million in annual sales.

Life sciences are a significant and growing contributor to Greater Boston economy. At 42,855, the Boston region had the highest life science employment base among 12 leading metropolitan areas, including biotechnology, medical devices and pharmaceuticals employment, according to a 2004 Milken Institute study. The BRA reports that while Cambridge is a center for many industries in the region, Boston has shown significant growth in life sciences growth, supported by new development such as the Bio-Square project in the South End. Massachusetts ranked number 1 on the Milken Institute’s biopharmaceutical Innovation Pipeline Index and number 1 in nanotechnology, according to Lux Research.

MAJOR ACCOMPLISHMENTS AND INNOVATION 2002 - 2004

SkillWorks: Partners for a Productive Workforce is the largest public/private investment in workforce development in Boston’s history. The five-year partnership is dedicated to meeting employer needs for skilled workers and enhancing worker access to jobs that pay a family-supporting wage, through workforce partnerships, strengthening capacity and public policy advocacy. One of SkillWorks’ early successes helped to form an innovative partnership between the Voice and Future Fund, (the nonprofit arm of SEIU Local 615), and seven employers to develop "career ladders," which will provide part-time cleaning staff with English language instruction, skills training and career coaching.

20 new supermarkets have opened in Boston since 1992, more than doubling from 15 to over 35, according to according to a 2004 report by the Boston Municipal Research Bureau. Supermarkets in a city are viewed as an indicator of neighborhood stability and strength of the economy.

Privately-held, majority women-owned firms are projected to have grown by almost 18% in the Boston region (from Massachusetts to New Hampshire) between 1997 and 2004. Massachusetts is also projected to become of the 10 highest-growth-rate states for privately-held firms that are majority-owned by women of color, according to the Center for Women’s Business research.

Boston Main Streets is newly focused on upgrading local districts’ tech capacity through hardware, software and electronic communications capacity. The initiative helped produce nearly 500 net new businesses, completed close to 400 storefront improvement projects and provided design assistance to more than 530 businesses through 2003, according to its 2004 annual review.

Visit the Hub of Innovation’s Economy Section.

REMAINING CHALLENGES

Massachusetts has gained only 1% in new jobs since the employment peak prior to 2000, in 1998, while the national rate of job gains since 1988 is 24%, according to the Center for Labor Market Studies at Northeastern University. The state has 5% fewer jobs than the 2000 peak, according to UMass Boston research.  This raises the question of how well Massachusetts and Greater Boston are prepared to compete in the new global economy.

As many as 93% of state college graduates and up to 95% of community college graduates are either employed in Massachusetts or continue their education one year after graduation, yet per capita funding for public higher education in the Bay State has declined and is among the nation’s lowest. Massachusetts ranks 49th out of 50 states on FY05 tax appropriations for higher education per $1000 of personal income — and last among Leading Technology States. Per capita appropriations for public higher education were $122 in fiscal year 2004, but demand is growing. From 1997 to 2003, an additional 19% of undergraduates were enrolled in degree/certificate programs in state and community colleges, reaching more than 95,000. Between 1997 and 2004, the annual number of non-credit workforce development/job skills training courses in the state’s 15 community colleges increased from 2,898 to 6,994 (a 141% increase). Enrollment in these courses increased from 33,327 to 77,625 (a 133% increase), reaching an eight-year high, according to the Massachusetts Board of Higher Education.


Despite the importance of tax policy as a driver of economic outcomes,experts bemoan the lack of informed public discourse. Tax policy has become ideological rather than fact-based. For example, the Massachusetts Taxpayers Association calculates that, contrary to popular wisdom, Massachusetts residents currently enjoy one of the lowest levels of local and state tax and fees per $1000 of personal income in the nation. The Commonwealth of Massachusetts currently ranks 46th among all states — and 13% below the national average — having fallen from 6th place in 1981.

The Commonwealth of Massachusetts, with the highest population in the New England region, is increasingly perceived as "old and cold" in contrast to other regions in the US and world. It was only state in the US to have a net decline in the number of residents in 2004. The pending retirement of the state’s 1.87 million Baby Boomers over a 20-year period (between 2010 and 2030), a failure to fully educate immigrants to 21st century standards, the continuing out-migration of young talent and families to competitor "citistates," and a decline in foreign math and science graduate students put the state’s well-educated talent base at risk and suggests a skilled worker shortage in the future.

There has been a steady rise in income inequality in Boston over the past 40 years. Driven largely by disparities in educational attainment — as the economy has shifted from manufacturing to high tech — groups with less education have fallen further behind, while wealth is more highly concentrated among those with more education. In 1960 in Boston, the GINI coefficient measure of income inequality stood at 0.335, but by 2000 it had climbed to 0.481. This reflects national and regional trends. Back Bay/Beacon Hill, for example, is one of the wealthiest neighborhoods in the US, and a number of Boston suburbs also show very high wealth in contrast to concentrations of poverty in neighborhoods within the region’s older industrial cities, which are disproportionately inhabited by newcomer immigrants and people of color. (see indicator 3.6.1)

Local business headquarters are being lost to merger and acquisition. Following an intense period of consolidation in the 1990s, homegrown institutions such as the Bank of New England, Bank of Boston, Shawmut National Corp., Boston Gas, Beacon Properties, New England Telephone, and a number of signature law firms were merged or sold. The sale of Boston’s largest and most iconic locally headquartered corporations, Fleet Bank and John Hancock Insurance Company, and more recently Gillette, tipped the balance, raising concerns not only for the city’s economic base, but for the philanthropic and civic leadership roles traditionally held in by local businesses.

Greater Boston’s economic future depends in part on the creation of effective, collaborative, civic and business leadership structures — but observers find that Greater Boston lacks "the collaborative gene." The loss of rooted companies and CEOs — and the weakening of business coalitions — undermine an already weak and fragmented civic structure at a time when the city and region face numerous challenges, such as public education, public transportation, and affordable housing.  

Non-partisan research organization Mass Insight’s Science and Technology Initiative highlights the need for R&D strategic alliances to boost statewide competitiveness. This includes partnerships among public and private universities, teaching hospitals, government and industry throughout New England.

A high number of new patents filed by Massachusetts universities, hospitals and research institutions are not resulting in a commensurate number of innovation economy jobs in the state. Fewer than one in four workers are now employed in Massachusetts’ Innovation Economy, and the state lost 4.3% of jobs in the innovation clusters tracked by the Massachusetts Technology Collaborative from 2002 to 2003.

Unemployment rates for Metro Boston blacks and Latinos are well over twice as high as whites, according to Harvard University’s Civil Rights Project. Blacks and Latinos remain over-represented in Metro Boston’s lower-paying service jobs and underrepresented in professional and technical jobs. Throughout the region, over 10% percent of Latinos aged 16-19 have no diploma, are not enrolled in school, and are unemployed. (see indicator 3.6.3)

Businesses statewide confront health insurance and unemployment insurance costs that are much higher than the national average. In 2002, the average cost per employee for unemployment insurance was 70% above the national average — the seventh highest in the country — according to a 2003 report by the Massachusetts Taxpayers Association and the Greater Boston Chamber of Commerce. Some employers have deflected high costs onto workers. Employer misclassification of workers to avoid insurance premiums is estimated to cost the state up to $35 million in unemployment insurance taxes and up to $152 million in income tax revenue, based on a 2004 joint report by the University of Massachusetts Boston, Harvard Law School, and the Harvard School of Public Health.

Education and training needs are unmet for many Massachusetts residents.

• MassINC estimated in 2000 that one-third of Massachusetts workers lack the education and training to succeed in the New Economy; and a 2004 MassINC report notes that the state’s system of public higher education and workforce development lacks funding and a unified vision.
• Statewide, more than 25,000 people were on waiting lists for Adult Basic Education in 2004, including English as a Second Language instruction, with nearly 5,000 on waiting lists in Boston alone, according to the Massachusetts Department of Education.
• Less than 6% of Massachusetts adults without a GED or high school diploma are enrolled in adult education to boost their knowledge and skills, reported by MassFESS and the Women’s Union in 2004. The Center for Women in Politics and Public Policy at UMass Boston notes that employed single mothers are least likely to access workplace training after-hours due to family responsibilities.

COMPETITION

Other states are investing heavily in science and technology. Mass Insight identifies significant state investments to advance science and technology bases. These include:

• New York’s $85 million investment in a $185 million Center of Excellence in Nanoelectronics in partnership with IBM;
• Arizona’s approved $400 million for life science research facilities toward joint efforts to establish the Translational Genomics Research Institute and attract the International Genomics Consortium to the Phoenix area;
• Texas’s $100's of millions investment in upgrading the capacity of smaller University of Texas campuses and expanding the mandate of the Texas Medical Center to encompass a commercially-oriented biotechnology research park;
• Florida’s $300 million to attract Scripps Laboratories to open a major world-class research center; and
• California’s $3 billion bond bill, passed in November, 2004, to make available $300 million annually for stem cell research and development.

The Community Capital Investment Initiative (CCII) is a business-sponsored, public-policy advocacy organization working regionally in the San Francisco Bay area to attract private investment into low- and moderate-income neighborhoods. Funds are invested in smart growth, environmental redevelopment, and equity investments in business, with $175 million raised from both public and private sources as of July 2004.