Howgate: “No One Factor Determines Our Ability To Compete”
STATE HOUSE, BOSTON, SEPT. 10, 2024….As business leaders and Beacon Hill officials have focused more on competing with other states to keep residents in Massachusetts, a new report says that domestic outmigration may be threatening one of the state’s key advantages.
Among the state’s greatest strengths are its high-wage, high-knowledge industries stemming from the close ties Massachusetts has always had between its education system and its economy, according to the Massachusetts Competitiveness Index Report released Tuesday by the Massachusetts Taxpayers Foundation, UMass Amherst Donahue Institute and Massachusetts Competitive Partnership.
Though Massachusetts’s population has gotten more educated in recent years — between 2018 and 2022, the population of those 25 and older with a bachelor’s degree increased more than 2 percentage points, a high rate for already the most educated state in the country — its labor force is shrinking, the report says.
The labor pool hasn’t recovered from the COVID-19 pandemic. Though state data from last month show that the labor force participation rate increased 1 percentage point since last year, it still hasn’t made up total losses since 2019. According to MTF, the state is still 40,000 workers behind where it was pre-pandemic. Some of the workforce is retiring, as Massachusetts has a rapidly aging population, but a lot of workers are also leaving for lower-cost states.
The report says that outflow is more highly concentrated among wealthier residents, those more likely to work in the jobs that support the state’s economy and whose taxes fund the most government programs, especially since the passage of the income surtax in 2022.
“In short, our competitive strength is talent and our weakness is cost,” the report says. “The basic question for policymakers is clear: in a post-pandemic world, can we keep and attract talent or will high costs and fewer barriers to economic mobility result in Massachusetts losing its competitive edge?”
It later adds, “Losing high-wealth residents poses a clear and present economic and public finance threat to the Commonwealth.”
Doug Howgate, president of the Massachusetts Taxpayers Foundation, said the data show that both wealthy families and lower-income working class families are leaving the state, while families that land in the middle seem more willing to stay.
“The biggest outmigrants are at the top end and the lowest end of the income spectrum, and both are critical to our competitiveness. We absolutely want to make sure that families in the upper end of the range are staying here, that’s crucial, and we want to make sure that families can afford housing, can live here,” he said. “But they’re both showing a willingness to leave, and we need to be super concerned.”
Where are these families going? According to the report: California, Florida, New York, North Carolina and Texas, if they’re leaving New England. If they’re staying local, they’re most likely moving to New Hampshire.
“New York and California are similar states with advantages and disadvantages, but also states where you see a similar shift in demographics,” Howgate said. “But there’s also clearly some of our up and coming competitors. Places that are different demographically but a lot cheaper to live.”
Howgate said the intent of the report is to show the Bay State’s strengths and weaknesses in the conversation about competitiveness, which can often be reduced for a group’s specific political agenda.
“Some may argue that competitiveness is about the affordability and availability of housing, or the relative levels of individual and corporate tax; others argue that it is about the quality of our workforce or the costs of childcare. The reality is that no one factor determines our ability to compete, and any assessment of competitiveness must encompass a range of factors that speak to economic health, population and labor force, business and investment decisions, and quality of life,” says Howgate’s introductory letter to the report.
The index summarizes the state’s economic competitive disadvantages as including: labor force challenges, income inequality, energy costs, cost of living, commute times, child care costs, state and local tax collections, housing cost burden, domestic migration, and average unemployment tax amount per covered employees.
In each of these categories, Massachusetts ranked among the worst in the nation, and among the worst of the states the report deemed “economic competitors” (California, Florida, New York, North Carolina, and Texas).
Massachusetts’s strengths, the index says, are its population with a bachelor’s degree, 8th grade math test scores, average weekly wage, gross state product per capita, research and design funding as share of gross state product, international migration and life expectancy at birth.
On the first three metrics — population of the state aged 25 and older with at least a bachelor’s degree, 8th grade math test scores, and average weekly wage — Massachusetts ranks number one in the country, according to the report.
“Massachusetts companies and investors have always had to contend with high costs. The problem now is that the historic calculation – sacrificing costs for a ‘can’t find anywhere else’ workforce – has been altered. Workers, particularly high-wage workers, are more mobile than ever due to the proliferation of remote work opportunities. Massachusetts’ high costs have continued to set us apart from other states. Left unchecked, this is a disastrous combination for Massachusetts,” the report says.
It’s 9 percent more expensive to live in Massachusetts than the national average, and 15 percent more expensive than in competitor states like North Carolina. Business expenses like energy costs are also higher — 17 percent higher than in New York, and double the cost than in North Carolina or Texas.
Howgate said he hopes legislators and Gov. Maura Healey — who has made competitiveness a cornerstone of her messaging — will use the report as guideposts for policymaking.
“I think there should be and has been overlap in some of the implications of this index and what’s dominating the discourse on Beacon Hill, tax relief and a major housing bill, and where we need to do a lot of work, like cost of living. That’s also why it’s important we do an economic development bill, that’s why it’s so critical for that to be resolved and be resolved this year, it will target these sectors that are competitive strengths for Massachusetts,” Howgate said.
Healey’s team released a statement about the report, touting the state’s strengths highlighted within it.
“Massachusetts is ranked number one for innovation, education, and health care. We’re also ranked the number one place to raise family and for women. This benchmark recognizes those strengths, and affirms our Administration’s action to drive Massachusetts’ competitiveness forward. It’s why, since the time of these benchmarks, we worked to pass the largest tax cuts in 20 years as well as the largest housing bill in state history to lower costs for everyone. It’s also why we’re going to continue to drive a pro-growth agenda to power this economy and create jobs now and for years to come,” Healey said in the statement.
The report called the labor force trends a “clear warning to policymakers.”
“For policymakers, this data is sobering. For years, we have known that Massachusetts would face demographic pressures, which made retaining our workforce a top priority. However, the reverse is currently happening, with domestic outmigration contributing to a decline in our labor force and highwealth families leading the way. Given Massachusetts’ economic fundamentals – an economy that relies on high-wage sectors – and the fact that state revenues are disproportionately reliant on higher-wealth taxpayers, this trend must be reversed if Massachusetts is to compete,” it says.
