October 16, 2018

Experts: Out-of-staters boost Mass. economy

Economists have long argued that a labor crunch in Massachusetts, punctuated by an aging workforce and slow natural growth in the labor force and population, is serving as a brake on economic growth. They're changing their tune now.

Economists on the editorial board of the economic journal MassBenchmarks met privately Sept. 28 at the Federal Reserve Bank of Boston. They released their consensus findings late last week and reported they had a "spirited" discussion about economic activity, including recent growth they described as the fastest since the recovery began in August 2009

Notably, they reported that employment in Massachusetts has grown year-to-date through August at an annualized rate of 1.9 percent - "faster than normal for the state" - with growth concentrated in professional services, construction, and the software, education and health sectors.

As recently as January the same group of economists reported that the pace of economic growth in Massachusetts was expected to slow in 2018 due to labor supply constraints. But the most recent numbers from the Executive Office of Labor and Workforce Development show a sharp uptick in the labor force in Massachusetts, which was up by 145,700 people from the 3,660,400 in August 2017, with 141,800 more residents employed and 3,900 more residents unemployed.

The question is where are those people coming from.

In their most recent talks, the economists concluded more residents are participating in the labor force and international immigration "seems to be holding steady, but does not appear to be a source of growth." And while noting that hard data won't be available "for quite some time," they tentatively agreed that domestic migration - or people moving to Massachusetts from other states - appears to be on the rise, even though it's been a net negative for years.

"It stands to reason that the fuel for the state's recent labor force growth is the movement of workers into the state from other states," economists wrote Thursday in an "excerpts from the board" summary released by the UMass Donahue Institute. "This could entail people both moving in to live and work in the state, and an increase in workers commuting into the state."

Compared to other states, high housing and energy costs and a higher cost-of-living in Massachusetts have long served as an impediment to growth, countered by the state's economic selling points such as higher wages and stable knowledge-based industries like higher education, the life sciences and health care.

State officials told the News Service Friday that residential developers on the North Shore say nearly a quarter of their leases are from people relocating from out of state. And Housing and Economic Development Secretary Jay Ash says jobs are pulling more people into Massachusetts.

"Massachusetts is renowned for its world-class talent, educational institutions and forward-thinking companies. Our innovation economy relies heavily on our highly educated and skilled workforce, and it also attracts people who live in the broader New England region to cross the border for great jobs," Ash told the News Service. "Companies from key sectors such as life sciences and advanced manufacturing are expanding their presence in the state or relocating operations altogether, and this creates a greater pull for talent."

MassBenchmarks Executive Editor Robert Nakosteen, an economics professor at UMass Amherst, said editorial board members are "digging into the data" as they look for more conclusive proof about domestic migration.

IRS data reflecting 2018 tax returns and Census Bureau data will be available in late 2019 or 2020 and will shed light on domestic migration, according to Michael Goodman, co-editor of MassBenchmarks and executive director of the Public Policy Center at UMass Dartmouth.

"We just sort of backed our way into the hypothesis," Goodman told the News Service. "We reasoned our way to a plausible explanation for the growth."

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