BOSTON — Rising labor costs and a stagnant workforce are threatening Massachusetts’ status as a leader in innovation and economic growth, according to a new report from an independent tax watchdog group.
The Massachusetts Taxpayers Foundation new Competitiveness Index, released earlier in the week, found that while the state benefits from the “symbiotic relationship” between a highly educated workforce and key economic sectors such as health care and higher education, it also faces significant challenges related to cost and demographic shifts.
Those include the state’s high cost of energy, housing, and childcare, as well as a declining labor force, aging population, and increasing rates of outmigration, the report’s authors said.
“Massachusetts has long been a leader in innovation and economic productivity, but our ability to maintain this status is under threat,” said Doug Howgate, the foundation’s president.
The foundation ranked the state’s competitiveness standing on a broad set of 26 key metrics, ranging from economic health, population and labor force trends to business, employment, and investment factors as well as resident’s quality of life.
Among the key findings: Massachusetts’ talent and innovation are its biggest strength, with the state ranked first nationally in terms of adult residents with a bachelor’s degree, and first and second in performance among public school students in reading and math, respectively.
But the state’s high cost of living and cost of doing business is a “major competitive disadvantage,” according to the report, with energy, unemployment insurance and taxes near the bottom of national rankings, the report authors said.
Child care and housing costs, as well as commute times, also make Massachusetts a challenging place to raise a family, according to the report.
The authors said the COVID-19 pandemic exacerbated preexisting demographic challenges and pointed out the state has seen a 2.4% decrease in its labor force since 2018, a trend they said is a “serious risk” to the state’s long-term economic growth.
The state also ranks 45th in the nation for domestic outmigration, with many residents relocating to lower-cost states such as New Hampshire, the report noted.
Gov. Maura Healey and legislative leaders have focused on boosting the state’s competitiveness in response to previous reports showing an exodus of people from the state in recent years. Healey argues that a lack of housing, among other factors, is impacting the state’s ability to attract and maintain businesses and families.
But an economic development bill that would set aside hundreds of millions of dollars in bonding and tax credits and reauthorize the state’s life sciences initiative to boost competitiveness has been stuck in a six-member committee since the July 31 end of formal legislative sessions.
The bill, a key plank of Healey’s first term agenda, was approved by the House and Senate but differences between the two bills still need to be worked out.
The MTA’s new index, created with the Massachusetts Competitive Partnership and the University of Massachusetts at Amherst’s Donahue Institute, will be updated yearly to give policymakers, business leaders, and the public “a clear, data-driven understanding of how Massachusetts measures up against other states.”
“If Massachusetts is going to be serious about improving our competitiveness and enhancing what our state offers to residents and employers, we need to start with shared understanding of where we stand and where we want to go,” Howgate said.
Jay Ash, president and CEO of the Massachusetts Competitive Partnership, said the MTA report “provides a roadmap for the policies and strategies that can help us reverse these trends and build a stronger, more resilient economy.”
“Massachusetts is a great state, but to maintain our competitive edge, we need to address the fundamental issues driving up costs and driving out talent,” he said.
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at cwade@cnhinews.com