Experts say labor crunch imperils state growth

  • The tightening labor market is the “largest drag” on the state’s economy, Eileen McAnneny of the Massachusetts Taxpayers Foundation said Tuesday. UMass Dartmouth professor Michael Goodman, right, said the “biggest threat” is to “our capacity to grow.” STATE HOUSE NEWS SERVICE

State House News Service
Published: 12/5/2019 9:45:25 PM
Modified: 12/5/2019 9:45:14 PM

BOSTON — With an aging workforce and a low unemployment rate, Massachusetts faces a tight labor market, creating a dynamic that could limit the state’s economic growth.

That was one of the main messages economists delivered to lawmakers Wednesday at an annual Ways and Means Committee hearing that launches the state budget-writing process. Economists who testified projected a slower revenue growth rate than in the past two years, offering estimates that ranged from 0.8 percent to 3.5 percent.

As the hearing progressed, the number-crunching gave way to gave way to broader discussion about constraints on the labor force and potential policy responses. Experts pointed to housing affordability, congestion relief and education as possible keys to unlock untapped potential.

“The one recurring theme we heard over and over, that the greatest threat to future growth is demographics, an aging workforce and a workforce that does not have the numbers to sustain any more robust growth,” Senate Ways and Means Chairman Michael Rodrigues said after the hearing.

Revenue Commissioner Christopher Harding characterized the Massachusetts unemployment rate as “impressively low,” forecasting a rate of 2.8 percent this fiscal year, and said job growth may come at a slower pace than it has in the past.

“This could drive up wages — this could do all kinds of things that have a direct impact on business here in the commonwealth, because there’s a limited talent pool in order to achieve the growth these businesses want to achieve,” Harding said, after Sen. Cindy Friedman asked if there was any cause for concern with such a low unemployment rate.

The state’s workforce talent pool is further constrained by demographic shifts. As the population gets older, people age 65 and older — often more experienced and productive workers — will be leaving the workforce at an “accelerated pace,” while the number of people between the ages of 16 and 64 flattens out, according to the Massachusetts Taxpayers Foundation.

Foundation President Eileen McAnneny called the tightening labor market the “largest drag” on the state’s economy.

McAnneny called it “critically important” for the state to figure out how to provide more affordable housing options to attract young workers.

“When we talk about demographics, you can’t have the conversation without mentioning the cost of housing,” she said. “As young people decide where to locate in this increasingly global and mobile world, the cost of housing really is an impediment.”

The median home sale price in Massachusetts over the first 10 months of 2019 hit $400,000, according to sales data from The Warren Group, up 3.9 percent over the same period in 2018.

Similarly, UMass Dartmouth professor Michael Goodman said the biggest threat to the trajectory of the state’s economy is “our capacity to grow.” Goodman, who said it took him 2½ hours to commute to the State House from his New Bedford home, said economic growth has been concentrated in the greater Boston area, but “stifling congestion” and a high cost of living leave the opportunities in that region out of reach to many Massachusetts residents.

Creating more regional balance and realizing the full potential of other metro areas “will require a concerted and sustained effort to improve the physical, the institutional and the civic infrastructure of communities that have not yet had the opportunity to fully benefit from or fully contribute to what is now the longest period of economic expansion in our state on record,” Goodman said.

“To the extent that we can do that, we can exceed some of the expected slow growth that, given demographic and economic conditions, appears to be what we’re in for for the foreseeable future,” he told lawmakers.

On transportation, Goodman said, the more time people spend stuck in traffic, waiting for a bus, “waiting for the T to restart” or simply trying to access service in an area served by a regional transit authority is “reducing our ability to get stuff done, which I think doesn’t help the larger effort.”

A $1.5 billion, seven-year school funding overhaul Gov. Charlie Baker signed into law last week targets much of its investment to areas with higher poverty rates, including cities that also have low property values and higher numbers of students who are learning to speak English.

Goodman called it a “major step in the right direction” to invest in K-12 schools, “particularly urban K-12 education, where I think we’ve got the most wasted talent in that talent pipeline in public education.”

“So if those dollars get to where they need to go and we get better outcomes, it will be better all around,” he said.

Alan Clayton-Matthews, a Northeastern University economics professor, said spending on schools can positively affect labor force growth.

“There is a large untapped potential in our labor force across the commonwealth of kids who are more likely to graduate from high school, more likely to go on to college and are more likely to develop higher skills, and the education reform spending will help boost the labor force in that regard as well,” he said.

Looking beyond the state policy level, Senate budget chief Rodrigues said he also sees a need to “reassess our immigration policies.”

“We don’t have enough of a workforce that’s currently in the state, what do we need to do to have the workforce move into the state?” he told the News Service.

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