Exhibit A is the job market, where hiring has trailed the country as a whole over the past four years. Unemployment remains low — 4.3 percent in August — but that’s largely because the ranks of available workers are shrinking as boomers retire and immigration is restricted.
I’ve been quick to blame the usual suspects for the state’s economic malaise, including a dearth of reasonably priced housing, high living costs, an inhospitable business climate, and, more recently, hostile Trump administration policies.
But a new report from the Federal Reserve Bank of Boston adds another layer to the explanation: Massachusetts simply couldn’t continue to create jobs faster than the rest of the country, as it had done for most of 2009 through 2022 (the COVID shutdown of February through April 2020 being the key exception).
Much of Massachusetts’ outperformance came from a few industries that were growing at a pace they couldn’t sustain over the long haul — and when they slowed, so did the whole state.
The latest: Massachusetts’ rapid employment growth was powered primarily by professional and business services firms, health care and social assistance providers, and construction related to those sectors, Boston Fed researchers Riley Sullivan and Jeffrey P. Thompson said in a brief released Thursday.
These industries accounted for one-third of employment in the state in early 2009, and they were responsible for nearly two-thirds of the jobs that were added from that year to early 2020.
“The rates of growth in these sectors during the pre-pandemic expansion and the early phases of the pandemic, for example, were above trend and likely unsustainable over the longer term,” they wrote.
Why it matters: Housing affordability, taxes, and business regulations are frequently cited as factors behind the sluggish Massachusetts job market and low competitiveness rankings versus other states.
But such shortcomings aren’t unique to Massachusetts.
“Housing costs, for example, surged in the Boston metro area following the onset of the COVID-19 pandemic, but the increases were in line with national trends. . . Compared with those of other major US high-tech hubs, Boston’s housing costs are in the middle of the pack,” according to the Boston Fed report.
The cost of housing is “not crucial to the survival of the cutting-edge innovation sector,” Thompson said in an interview, because salaries are high.
Zoom in: Sullivan and Thompson chart Massachusetts’ employment boom during the 2010s and the slowdown that began in mid-2022.
- From January 2007, prior to the financial crisis, through January 2020, statewide payrolls expanded 14 percent, compared with 11 percent nationally.
- After the shutdown, from April 2020 to July 2022, Massachusetts employment growth also outpaced the US average.
- But starting in mid-2022, the state fell behind, with payrolls expanding 0.6 percent through July 2026, compared with 3.8 percent nationally.
What went wrong: The same sectors that fueled the state’s hiring binge are now holding back growth.
Professional and business services employment growth has lagged the US average by 4.5 percentage points since mid-2022, while growth in health care and social assistance has trailed by 13 percentage points. Construction job growth has been 5 percentage points below the national rate, in large part because a glut of empty laboratory space halted new projects.
The Boston Fed paper didn’t try to explain what triggered the deceleration. Thompson told me that the post-COVID employment surge in these sectors was unlikely to last.
In health care and medical research, “some of the hiring was in response to COVID,” he said. In tech and elsewhere, “overhiring was a response to short-term demand. . . [But] it doesn’t explain everything.”
The researchers estimate that Massachusetts would have added 215,000 more jobs from January 2020 to July 2026 if employment growth had matched the national rate.
Final thought: The state’s knowledge-intensive, high-paying sectors are growing slowly but are not foundering, according to Sullivan and Thompson.
They remain “highly productive and competitive relative to their national counterparts,” the researchers said.
What will jolt the local job market out of its torpor? The Boston Fed’s brief didn’t include a forecast, but Thompson noted that San Francisco has bounced back on the strength of artificial intelligence.
“It can happen in other places,” he said.
Larry Edelman can be reached at larry.edelman@globe.com.
