Life In a‘Boutique Economy’

Dana Ansel says Massachusetts simply can’t be expected to be one of the leading states when it comes to job creation — and for several reasons.

First, the Commonwealth has an older economy, and most of its square mileage has been developed, especially in the Eastern part of the state, thus limiting commercial and residential development. Meanwhile, businesses across many sectors, but especially manufacturing, are discovering how to do more with fewer or the same number of people — leading to strong gains in productivity, but not employment — and many other parts of this country and other nations are becoming more competitive in several of the fields that have generated job growth in the Bay State.

“So it would be unrealistic to think that Massachusetts would be at or near the top of the chart,” said Ansel, research director for the Mass. Institute for a New Commonwealth, or MassINC, who added a quick ‘but…’
“We can do better than 49th.”

That’s exactly where the state sits, behind only Michigan, which has been devastated by ongoing cutbacks within the auto industry, in terms of jobs gained since the peak of the last economic boom in early 2001.

The Bay State’s relatively poor showing in this statistical category is at the heart of a new MassINC report, undertaken in concert with the Center for Labor Market Studies at Northeastern University, titled “Mass. Jobs: Meeting the Challenges of a Shifting Economy.”

This shift is toward something those at MassINC are calling a “boutique economy,” one that, according to MassINC President Gregory Torres, “rewards well-educated and skilled workers in knowledge-based sectors, but offers fewer options for everyone else.”

Michael Meeropol, an Economics professor at Western New England College, calls it something else — the ‘winner-take-all economy.’

“Instead of a solid middle class, we have a sliver of a very wealthy group driving the economy,” he said. “There has been an unbelievable skewing of income distribution and wealth.”

Regardless of what it’s called, this shift has played a big part in the state’s sluggish job-growth performance, and MassINC officials are imploring civic and business leaders to recognize that the landscape has changed and make needed adjustments — and soon. That’s because, if the state stays on this track, revenues will be constrained, and out-migration will likely increase as residents seek opportunities elsewhere.

Ansel told BusinessWest that MassINC issued the 110-page ‘Mass. Jobs’ report with the goals of drawing attention to the Commonwealth’s job-creation problem, prompting dialogue and then action to generate some improvement in that realm, and also providing a mix of opportunities for all workers.

“There are two levels of jobs — there are quality jobs, and then there are just ‘jobs,’ and they’re both important, here and in any state,” she said. “We’ve done well, for the most part, on the quality side, but we still need plain old jobs; such jobs are a key piece of driving revenue for the state.”

The report suggests several steps, including everything from growing the number of so-called export-based jobs, which bring dollars into Massachusetts, to filling the estimated 90,000 existing job vacancies in the state, which cross several sectors, to improving the business climate in the Bay State.

In this issue, BusinessWest takes an indepth look at the report and what its findings mean for the long-term health of the Commonwealth.

Work in Progress

For the record, the top five states in the nation for job growth over the past six years, or since the peak before the last recession, are Nevada (a 27% gain), Arizona (17.9%), Wyoming (15.1%), Idaho (14%), and Florida (12.6%). Massachusetts (-3.7%), behind only Michigan (-6.3%), shouldn’t really be compared to most of those at the top, which are seeing huge growth in development and spikes in population, said Ansel.

But it can be compared to other New England states and 10 so-called ‘competitor states’ — these include New York, New Jersey, Virginia, North Carolina, California, Texas, Colorado, Minnesota, and Florida — and it doesn’t compare well.

Four New England states have added jobs over the past six years, while New Jersey has seen 2.3% growth, and New York has “just about broken even,” said Ansel, noting that the Bay State is one of only six states that have not recovered all those jobs lost during the last recession, when employment plunged more than 6%. In fact, Massachusetts remains 100,000 jobs below its peak employment level of 3.3 million in early 2001.

There are several reasons for this, said Ansel, noting that when the recession hit, Massachusetts had a large number of jobs in the technology sector, which was extremely hard-hit by that downturn and has yet to fully recover.

“At the peak of the boom in 2001, the Massachusetts economy was more dependent on high-tech jobs than most other states,” she said. “The recession wiped out high tech jobs here and everywhere; we had built a lot of our economic success on an industry that suffered some of the greatest losses.”

But there were other factors as well, including a nationwide decline in manufacturing jobs, as well as mounting competition for jobs in the knowledge industries. Indeed, the Bay State’s share of high-tech jobs nationwide has declined, from 4.2% in 2000 to 3.9% in 2005, showing clearly that other states are becoming more competitive. Also, the high cost of doing business in the Commonwealth — when compared with other states and other nations — no doubt has played a role in the low rate of job growth, she said.

Despite a net job loss, some sectors have added new positions, said Ansel, thus changing the composition of the state’s economy toward that ‘boutique’ characterization, manifested by a shift toward knowledge-based sectors, such as health care and biotech, that often require highly specialized employees who hold at least a bachelor’s degree.

While suffering losses in manufacturing and high-tech, Massachusetts doubled the national rate in adding biotech jobs (15% vs. 7%) between 2000 and 2005. In that period, Massachusetts added 10,000 new biotech jobs, bringing the sector to about 75,000 jobs in Massachusetts, or 2.4% of the state’s payroll jobs. By comparison, manufacturing, despite large job losses, still accounts for about 9% of Massachusetts jobs, including some biotech manufacturing positions.

And while Massachusetts trailed the nation in job creation, it was among the leaders in productivity, an important measure of economic health. The state’s level of labor productivity ranks seventh-highest, and since 2001, it has grown faster than the nation’s (11.5% versus 10.6%). In 2005, the productivity level of an employee in Massachusetts was $94,150 in real output per worker, compared with $83,920 nationally.

These statistics and others point to a shift toward a ‘boutique economy,’ said Ansel, noting that this term was contrived by the report’s authors to describe what’s happening within the Commonwealth’s borders.

“It captures a significant shift in the economy toward knowledge industries,” she explained. “While we do have an overall record of job loss, we are still creating jobs in some sectors; where we’re creating jobs and where we’re losing them is not the same place, and as a consequence, the economy is shifting.”

Laboring State

The MassINC report lays out four principles that could form an economic vision and agenda to be shared by the administration, Legislature, business community, and labor community, said Ansel, adding that the report recommends a long-term strategy that includes creation of export jobs, better workforce training to fill current vacancies, improvements to the business climate, and a regional approach to meet varying needs across the state.

The report’s four main recommendations are:

• Setting a target goal for the number of new export-based jobs created. “Because export jobs — those linked to selling goods and services out-of-state — bring revenue into the state and generally offer higher pay to workers, they embody the characteristics of ‘good jobs’ in the economy, said the report’s authors. “Export-based jobs and not specific sectors should be the emphasis of a long-term strategy.”
• Filling the existing vacancies. A Massachusetts job vacancy survey in late 2006 revealed more than 90,000 openings. The vacancies indicate a willingness of employers to hire more workers, said Ansel, but may also show the need to better educate and train a workforce that has the required skills to fill the slots.
• Creating a more favorable business climate that streamlines permitting for business expansion across Massachusetts and addresses expenses, such as energy costs and unemployment benefits and policies. “Economic policy should encourage and assist Massachusetts companies looking to grow here,” said the report’s authors.
• Taking a regional approach. “Because economic conditions and needs vary across the state, efforts to develop strategies must focus on regional strengths,” the report concluded. “The specific strengths will determine what growth opportunities are best suited for a region. State leaders should also develop an urban strategy for cities outside Greater Boston that are lagging the rest of the state in job creation.”

Ansel called the 90,000 job openings in the state “low-hanging fruit,” comparatively, because it is generally considered easier to fill positions that companies have open and desire to fill than to create new jobs.

But the fact that the jobs remain open at a time when unemployment is relatively high indicates a mismatch between the skills needed for those positions and what the available labor market possesses. Thus, closing that gap is a priority for the state, said Ansel.

“That number (90,000) is the highest since the state started doing the job-vacancy survey in 2002,” she said, adding that there were 75,000 openings reported in the previous survey, undertaken in 2006. “It’s significant, and it sends a mixed message in the sense that there is some appetite on the part of employers to hire people, which is good. But at the same time, if they’re not able to fill those positions, that’s a real problem; vacancies are increasing across the country, but the implications are greater here because of how slow our job creation has been.”

Many of the openings are in health care and related sectors, said Ansel, and perhaps half of them could be handled with a year of college education. The challenge ahead, she said, is to create the right programs and motivate people to enter them.

Ira Rubenzahl, president of Springfield Technical Community College, agreed. He said his school doing its part by focusing on health and technology programs, designed to assist area employers with vacancies they’re struggling to fill — and also on improving access to higher education.

“This report clearly indicates that education is the key to the new economy,” he said, adding that he considers the findings sobering, but not at all surprising. “Our economy has shifted, it is knowledge-based, and we have to properly prepare people if they’re going to succeed in that economy.”

Meerepol, while acknowledging that Massachusetts is struggling with job creation, said the problem exists nationwide, and it needs to be addressed. He said the trend toward greater productivity brings benefits to individual companies, but not to the country or individual states.

“Over time, even in good times, really efficient companies are shedding workers like crazy, and when things pick up, they learn to produce more with the same number of people,” he said, noting reports showing that nationwide, there are fewer job losses and fewer gains. “One of the reasons why job growth is so slow in Massachusetts is because of this surge in productivity, and that’s also why we’re seeing the loss of so many manufacturing jobs across the country.

“You want that growth in productivity, but you want it to benefit many people in terms of income; when that happens, you get the mass-market increases that lead to job growth,” he continued. “The reason why the economy experienced some significant job growth in the late 1990s was that, for the first time in 20 years, lower-income people were enjoying rather significant gains in income.”

Solutions to the job-growth problem won’t come easily, said Meeropol, especially if elected officials resist what he fully understands is political kryptonite — raising taxes and putting the proceeds to work creating jobs, a strategy that has worked during several periods in the nation’s history, including World War II, the late ’60s, and the Reagan years.

“There have been several times when we’ve seen a rise in total government revenue, a rise in taxes, and the percentage of total government spending rose, which is a rise in spending, and the economy boomed like crazy,” he said.

It’s an obvious thing, but no one is willing to go that route; it’s good economics, but terrible politics.”

Bust with No Boom

Compounding matters for the Bay State is the national economy, and the very real possibility of another recession, said Ansel, noting that the state simply won’t recover all the jobs it lost during the last downturn before entering another one.

This scenario puts even more emphasis on forging new and better job-creation strategies, she continued, because jobs are critical, and the competition for them is mounting.

And this is just a part of life in a boutique economy.

George O’Brien can be reached at[email protected]