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The Pioneer Valley Economy

Seeking to Break Out of Ongoing Stagnation

The Pioneer Valley in Western Mass. has gone through the kinds of cycles that are typical of evolving economies in both the state and nation. But what has been occurring over the past 20 years presents a curious mismatch between appearance and hard data.

By appearance, the region would seem to be in a difficult position; companies, especially ones that once offered high-wage manufacturing jobs, have been closing their doors, victims of the forces of globalization and creative destruction. Poverty rates are high and increasing. And the region continues to see a net out-migration of residents. But at the same time, data nonetheless shows that jobs and income are still growing, albeit slowly. The region has not experienced the rapid economic growth seen elsewhere during the mid- to late-1990s, but neither has it suffered the sharp drop-off seen in other regions in recent years.

In short, the region continues to economically hold its own, especially in the past few years and especially in its level of employment. But progress is slow — indeed, some have described the Pioneer Valley’s economic condition as one of ongoing stagnation. More than anything else, this study of the last 20 years of economic and demographic development in the Pioneer Valley reveals an economic landscape that is missing a dynamic growth sector that can provide a growing number of high-paying jobs — and a sense of economic identity for the region.

During the 19th century, the Pioneer Valley was America’s first Silicon Valley, where innovation led to a thriving manufacturing sector. The use of interchangeable parts in manufacturing, which saw its origins in the production of armaments for the military at the Springfield Armory, revolutionized production processes. As a consequence of this advance, a thriving machine tooling and precision metal working sector developed in the region.

But throughout the 20th century, both major and small employers have gone out of business, a process that continues as manufacturing plants close. The manufacturing economy void has been partly filled by the ‘Ed-Med’ sector — ‘Ed’ stands for education or more generally ‘knowledge creation’ and ‘Med’ stands for the medical, or, more broadly health care. Ed-Med is by far the most important current employer in the Pioneer Valley. But this positive development cannot mask a significant area of alarm: the incidence of poverty in the region, which exceeds that of the state (and, in the case of Hampden County, that of the nation).

While the region has not experienced the same dire fate as other American cities that have lost their economic base, the Pioneer Valley has suffered from comparison with the eastern part of Massachusetts, especially the metropolitan Boston area. This has been especially true when looking at the secular pattern of real (price adjusted) per capita income. While per capita income has been growing in the region, its rate of growth has fallen significantly behind that of the state as a whole, and especially that of metropolitan Boston.

Employment – the “Ed-Med” Influence

From the business cycle peak in the late 1980s and early 1990s to the peak in the most recent business cycle, employment in the Pioneer Valley grew by 2.5%, from 319,739 in 1989 to 328,000 in 2004. National employment growth was a considerably more robust 14.8% during the same period, and statewide growth was 3.8%. The Boston metropolitan/northeastern part of the state experienced employment growth of 4.7% over the same period. The Pioneer Valley has, however, seen somewhat stronger employment growth recently. From the trough in employment in 1995 until 2004, employment grew by a bit more than 7%, from about 306,000 to about 328,000.

In the Boston/Northeastern part of the state, employment peaked in 2002 and then began to decline. The Pioneer Valley, however, did not see a drop in employment through 2004. Nor did it experience a drop in employment during the recent recession, unlike Eastern Massachusetts, where the sharp loss of jobs followed a period of relatively robust job growth. The knowledge creation segment of the economy is broad, and the Pioneer Valley encompasses many of its activities, including information (media production and distribution, telecommunications), professional and technical services provision, management services, and educational services. Combined, such knowledge creation sectors accounted for nearly 60,000 employees, or 21% of all Pioneer Valley employment in 2004.

One of the more prominent employers in this sector is the flagship Amherst campus of the University of Massachusetts system, which is the largest piece of a regional higher education cluster. Surrounding UMass are four well-known small liberal arts colleges: Amherst College, Hampshire College, Mount Holyoke College, and Smith College. These five institutions form the Five College System, which allows students in any of the colleges to enroll in classes in all of them. The five colleges employ a total of nearly 9,000 people, not counting a large number of student employees on all the campuses, especially that of the University of Massachusetts. But while this concentration of employment is important to the Pioneer Valley economy and identity, it has not been a growth area, or even a particularly dependable sector. In particular, UMass has suffered from severe budget cuts in recent years, and only now is beginning to replace some of the jobs that were lost.

After education, the next most important employment sector is health care, which accounts for 16% of regional employment, nearly 44,000 people. This sector consists not only of health care, as traditionally defined, but also “social and community services,” such as homeless shelters and community kitchens. Despite its steep decline, traditional manufacturing remains an important employer, accounting for 11% of the region’s total employment in 2004, or more than 32,000 people.

Considerable economic development efforts, as well as investment dollars from the state, have resulted in the Pioneer Valley Life Sciences Institute, a collaboration between Baystate Medical Center and UMass. While its primary stated goals are clinical, the collaboration is designed to create the environment from which to launch commercially successful development and manufacture of biomedical and other health-related products. This type of activity is broadly defined as ‘advanced technology manufacturing.’ While this activity now accounts for only 1% of Pioneer Valley employment, its potential is important.

Population Trends Reflect the Economy

Recent population patterns in the Pioneer Valley closely mirror the path of the economy. Population growth in the region over the past 20 years has been very slow, growing from 646,000 in 1980 to 680,000 in 2000, for an increase of just 5.2%. Over the same period, population grew in Massachusetts by more than twice as much (10.7%) and in the United States by nearly 23%.

Perhaps the most troubling pattern in population change in the region is its continuing net out-migration. Since 1990, the region has lost a net of nearly 35,000 people to out- migration. This number is the result of considerable ‘churning’ – in other words, it is the outcome of the interaction between flows of in-migration and out-migration. During this period, more than 130,000 people moved into the region while more than 165,000 people moved out. There was been a sharp increase in the volume of net out-migration in the last year for which data is available, 2004.

Much of the migration into and out of the Pioneer Valley involves short-distance moves. Many of these gross flows cancel out, leaving small net (though slightly negative) changes due to migration. By far the largest in- and out-flows have been to and from the border state of Connecticut.

There are also significant flows probably associated with retirement from the labor force. The largest net out-flow of migrants from the Pioneer Valley — nearly 13,000 net out-migrants over the period — was to Florida. This represents one-third of all net out-migrants from the Pioneer Valley since 1990.

Most other destinations/origins of Pioneer Valley migrants are close by, either in New England or New York state (with which the Pioneer Valley had a positive net migration flow). California and Arizona also received relatively large net flows of migrants.

Within the state, the Pioneer Valley has a net negative migration balance with most other regions. The Berkshire and Central regions are the only of the state’s regions with which the Pioneer Valley has a positive net migration. Two regions in the state, metropolitan Boston and the Cape and Islands, have the largest magnitude of negative net migration balance with the Pioneer Valley. Much of the migration to the Cape and Islands may, again, be associated with labor force retirement.

It is encouraging that for all this net out-migration, a good deal of in-migration to the region is also occurring. Typically, when a region is truly stagnating, migration is uniformly in the ‘out’ direction, with very little in-migration. The Pioneer Valley has certainly not experienced that pattern. And a significant portion of the negative net migration may well be due less to economic forces than to retirement.

Nonetheless, the reality remains that net migration has been consistently negative for over a decade. Migration tends to be highly selective of the very members of a population upon which the future is based: Younger, better-educated, and with better income/occupational prospects.

There has been considerable migration within the Pioneer Valley, the net result of which has been a drain on the population of Hampden County, where the cities of Springfield and Holyoke are located. Since 1990, Hampden County has gained more than 29,000 migrants from within the Pioneer Valley, nearly 30,000 of them from Hampshire County. Over the same period, Hampden County lost over 34,000 residents to Hampshire and Franklin Counties. The net effect of this in- and out-migration has been a drain on the population of Hampden County. Nearly 5,000 net migrants have left Hampden County for Hampshire and Franklin Counties, most of them to Hampshire County.

Income and Poverty

The pattern of per-capita income in the region, especially relative to the state, is instructive of the pattern of the regional economy over time. The region’s per capita income has been consistently lower than that of the state as a whole, though that fact is at least partly compensated by a lower cost of living, especially in housing. Still troubling, however, is the pattern of change over time. In 1970, per capita income in the Pioneer Valley was nearly 90% that of the state and more than 80% that of metropolitan Boston. Since then, the region’s per capita income has deteriorated. In 2003, Pioneer Valley per capita income was 75% of the state’s and 66% t of metropolitan Boston’s.

The relative deterioration of regional incomes is a secular, rather than a cyclical, phenomenon. Over the course of the business cycle, whether increasing or decreasing, the changes the region experiences in per-capita income are always more muted than the change experienced in the state. The Pioneer Valley does not rise as high or fall as far as the state. The economic dynamism of the eastern part of the state has never translated well to the Pioneer Valley.

This region did not fully share in either of the two most recent sustained state economic expansions of the 1980s and the 1990s. The other side of the picture is that the Pioneer Valley also did not suffer as badly as Eastern Mass. when recession replaced expansion. Because it is a hotbed of technology, Massachusetts experiences economic cycles that are at times excessive. The bad news is that the Pioneer Valley has long since lost its high technology sectors; the offsetting news is that its economic cycles have been less extreme.

The incidence of poverty provides another measure of the region’s income circumstances. In 2004, the U.S. Bureau of the Census defined the poverty threshold for a family of four as a total household income of $19,157. The poverty rate in the Pioneer Valley has consistently been higher than that for the state. This is especially so in Hampden County, where the poverty rate also exceeds that of the nation. Of the three counties in the region, only Hampshire County has a poverty rate that is less than that of the state.

Perhaps an even more telling measure of regional poverty is the share of students eligible for the free and reduced school lunch program. A study recently completed by the UMass contained the following analysis of this data:

“The federal poverty level is too low to properly assess the number or proportion of children from low-income families. Federal school lunch subsidies cover children from families with incomes up to 165% of the poverty level…

“The percentage of public school students eligible to receive reduced-price or free school lunches in the Pioneer Valley is alarming,” the report continues. “In the 2003-04 and 2004-05 school years, 40% of public school students in the region resided in households with incomes no higher than 165% of the poverty level. No region in the state has a higher percentage of low-income students. Public school systems in cities such as Boston or Worcester have comparable percentages of low-income students, but the regional concentration of low-income students in the Pioneer Valley is approximately one-third higher than any other region in the state. The Pioneer Valley’s low-income students are concentrated in the region’s cities, Springfield, Holyoke, and Chicopee; however, many of the region’s rural school districts are also home to high concentrations of low income students.”

The Cost of Housing

The Pioneer Valley has less expensive housing than the eastern part of the state, a cost advantage that many in the region hope will help promote increased economic growth. A Boston Globe report late last year explained:

“Housing prices in Western Mass. have risen much faster this year than in the Boston area, fueled by Bostonians moving farther from the city in search of lower prices, according to a report released yesterday…

“Between January and November, the median price of a single-family home rose 13.3% from a year earlier in Hampden County, where Springfield is located; 10.9% in Hampshire; and 10.3% in Franklin. Depending on traffic and the time of day, these counties are around a 90-minute commute each way from Boston, though they’re much closer to employers along Interstate 495 or in the Worcester and Framingham metropolitan areas.

“The condo market in Western Mass., while smaller than Boston’s, is sizzling. The number of condo sales surged nearly 28% this year in Hampden, Hampshire, and Franklin. The median condo price rose 28.9% in Franklin County in 2005; 18.9% in Hampden; and 18.2% in Hampshire, according to Warren Group. Condo prices were up 1.8% in Suffolk, and 8.5% statewide. Despite the price increases, the gaps between east and west remain huge. For example, the median price of a Hampden County condo was $124,900 this year, up from $105,000 last year. The median condo price in Suffolk County was $340,000, up from $333,850 last year.”

This may mark the beginning of a significant development for the region. Though it is too early to determine if this trend of housing price-driven movement to the region will continue and grow, especially with home prices flat or falling across the state. But this is at least an indication that the Pioneer Valley has some natural advantages — and these may again be grounds for hope.

Conclusion

In 1999 Benchmarks published a profile of the Pioneer Valley economy. In the conclusion of that study was the following assessment:

“There is a considerable effort under way to revive and remake the economy of the Pioneer Valley … at the moment, those forces have resulted in a flat or slightly growing regional economy. The difficult task of spawning genuine economic development lies ahead.”

< >Seven years later there seems little reason to modify this statement. The Pioneer Valley, despite its illustrious economic history and reputation for offering a high quality of life, remains stagnant and without direction.

Robert Nakosteen is on the faculty of the Isenberg School of Management at the UMass Amherst and is executive editor of Benchmarks, the university’s quarterly report on the state economy. This story originally appeared in Benchmarks.

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