The Republican – Outlook 2014: Which way is the Massachusetts economy pointing as we enter 2014? – 2/8/14

By CHRISTOPHER P. GEEHERN

5-14-13 – West Springfield- Republican staff photo by Don Treeger- The EASTEC manufacturing trade show is underway on the grounds of the Eastern States Exposition. Here, Arthur Nowik of Longmeadow (left) talks with Jack Ford of the Lindco Springfield Co. in West Springfield at the Lindco booth.

Which way is the Massachusetts economy pointing as we enter 2014?

Are we entering an economy poised for new buildings, new jobs, new discoveries, new opportunities and new prosperity?

Or do we remain mired in a sort of “sequester economy,” struggling against the loss of federal defense and research funds, a continuing recession in Europe, and an unemployment rate that for the first time in many years now stands higher than that of the rest of the country?

There is ample evidence for both optimists and pessimists.

Like your glass half full? U.S. stock markets posted their largest annual gains since 1997 last year, with the Dow rising more than 26 percent on stronger-than-expected economic growth. The economy created an average of 195,000 jobs per month and the U.S. unemployment rate fell from 7.9 to 6.7 percent.

In Massachusetts economic output grew 3.5 percent during the third quarter, while Bay State venture capital firms raised $5.4 billion for new investments, more than triple the amount raised in 2012.

Prefer your glass half empty? The Massachusetts unemployment rate rose from 6.4 percent in April to 7.1 percent in November as the innovation economy that outperformed the rest of the nation for half a decade slipped into neutral. More than a quarter million Massachusetts residents remain out of work. Sequestration alone cost the commonwealth an estimated 14,000 jobs in fiscal year 2013.

It’s no wonder that the monthly Business Confidence Index of Associated Industries of Massachusetts (AIM) gained just 2.4 points during 2013 as increases and decreases alternated nearly every month. Sluggish confidence suggests to some observers that the psychological effect of the recession, like the downturn itself, was more severe than originally thought.

Christopher P. Geehern
Christopher P. Geehern, executive vice president for marketing, Associated Industries of MassachusettsAIM 

Associated Industries of Massachusetts believes it is time for Massachusetts to restart its economic engine. It’s time to build the momentum needed to navigate beyond what Ray Torto, chairman of the AIM Board of Economic Advisors, recently called a “lost year” for business confidence.

As the campaign for governor of Massachusettstakes shape, the employer community believes that two public-policy issues hold the key to accelerating job growth and putting some of the 250,000 Massachusetts residents who are currently unemployed back to work.

One is excessive business costs, which challenge employers daily. The second is a pervasive shortage of trained and qualified employees.

If you think business costs don’t affect jobs, take a look at the frenetic competition among multiple states to land the New Balance project. Or consider the recently concluded free-for-all among a dozen states to land the Boeing 777x manufacturing line.

In such a competitive environment, can Massachusetts, or will Massachusetts, provide a hospitable business climate for the new and developing enterprises that will become the MassMutuals, HASBROs and Liberty Mutuals of the next 50 years?

Massachusetts must first and foremost continue the progress it has made to control the most troublesome non-wage cost confronting employers – health insurance.

AIM supported the Health Care Cost Control Law of 2012, which limited medical spending to the overall rate of economic growth, and we are hopeful that health-care spending will not exceed the 3.6 percent growth target for 2013.

Insurance premiums have moderated nationally, increasing at their lowest rate in a decade last year. More employers are offering coverage that allows employees to better manage their health care. Employees are increasingly seeking high-quality care in moderate-cost community settings.

A good start, but the hard work of solving the health insurance crisis is just beginning.

Health-care analysts expect premium increases to accelerate during 2014 as the economy strengthens and the Affordable Care Act is integrated into the health delivery system. In Massachusetts, health care spending still accounts for a staggering 16.6 percent of the state economy. Even more staggering is that fact that 21 to 39 percent of medical expenditures in our state are wasteful – that’s $26.9 billion in wasted money on the high end, almost as much as the entire state budget.

And thousands of small employers in Massachusetts enter 2014 facing the prospect of double-digit premium increases because key provisions of federal health reform threaten to accelerate the already burdensome cost of providing insurance to employees. AIM calls upon state officials to continue to seek a waiver from these onerous provisions.

We also urge lawmakers to address other business costs that set Massachusetts out of the economic mainstream:
• Freeze the unnecessary and imprudent $500 million increase in unemployment insurance rates that took effect January 1. The Unemployment Insurance Trust Fund used to pay benefits to jobless residents showed a balance of $800 million in November and needs no additional infusion of funds. We further call upon Beacon Hill to finally make structural reforms to an antiquated and expensive unemployment insurance system.

• Resist the temptation to increase the tax burden and avoid a repeat of last year’s ill-fated expansion of the sales levy on software and computer services that made national news and set back the commonwealth’s reputation as an innovation-friendly state.

• Do everything possible to relieve the burden of electric rates that are among the highest in the nation.

The objective is to create a uniformly vibrant ecosystem of interdependent companies – large and small, Berkshires to Boston, bistros to biotech – that together create the moments when job opportunities meet the person who need them.

The second key to accelerating job growth is solving the troubling paradox of persistent worker shortages in a high-unemployment economy.

Ask any Massachusetts employer about what worries him or her most and you’ll hear the same response: “I can’t find enough qualified people to run my business.” It’s a concern shared by technology and bioscience enterprises in Cambridge, manufacturing companies in the Pioneer Valley, health-care providers in Worcester, and restaurants and hotels throughout the commonwealth.

Worker shortages caused by both skill gaps and demographic changes are pervasive throughout the Massachusetts economy. The 2013 Massachusetts Job Vacancy Survey indicates that 5 percent of all jobs in the Bay State – 135,000 positions in all – stood vacant at year end. Vacancy rates ran 6.1 percent in computer and mathematical occupations, 4.8 percent in healthcare support occupations and 2.7 percent in manufacturing.

What’s wrong with this picture? We have urban high-schools where half of all students drop out before graduating while employers located less than a mile from these schools remain desperate for smart, motivated workers. With a quarter million Massachusetts residents unemployed, why are technology companies in Cambridge paying their workers thousands of dollars in referral bonuses for new employees?

The picture doesn’t improve as we look into the future. Northeastern University Economist Barry Bluestone estimates that 100,000 skilled manufacturing jobs in Massachusetts will open up in the next decade as older workers retire. The number of young people graduating from Massachusetts high schools, meanwhile, is projected to fall by 9 percent by 2020.

The World Economic Forum projects that there could be 20 million vacant U.S. jobs during the next decade unless the current education-to-employment system undergoes significant changes.

AIM challenges employers and the commonwealth to work together to make 2014 the year Massachusetts begins to solve the worker dislocation crisis once and for all. Innovative and creative initiatives are taking place throughout commonwealth – it’s now time to take these success stories and scale them into a comprehensive solution.

Massachusetts needs first and foremost to complete the task of creating public schools that effectively prepare students for the rigors of the knowledge economy. We may have the best schools in United States, but we do not lead the world, and in fact we’re losing ground. AIM members recently participated in a survey about the steps schools need to take to improve, and business will soon offer specific reform proposals based on international benchmarking.

We support the Department of Higher Education’s Vision Project to align the state’s public higher education system with the knowledge demands of the global economy.

But our greatest human capital deficiency compared to other countries comes in training both students and current workers to master the demanding skills that drive areas such as high-value manufacturing, information technology and health care.

Precision manufacturing companies in greater Springfield struggle to find men or women who can operate five-axis machining centers under just-in-time conditions. An online educational start-up in Kendall Square would hire 40 programmers today if they were available.

The Brookings Institution reports that many of the people filling jobs in health care are not even trained here – half of the medical scientists and 40 percent of pharmacists in Massachusetts are foreign born.

The good news is that employers in various sections of the state are taking matters into their own hands.

The Manufacturing Advancement Center in Worcester has developed a training pathway for manufacturing skills that can take individuals from basic knowledge though 26 credits of an associate of science degree in applied manufacturing technology.

State government, to its credit, recently announced four awards totaling more than $1.3 million to support regional programs to train unemployed and underemployed individuals, including veterans, for careers in the state’s advanced manufacturing industry.

Beth Israel Deaconess Hospital in Boston has established pipeline programs to attract, train, enhance and to retain a talented technical and professional workforce. And nearly two dozen Massachusetts school systems recently participated in “Hour of Code,’’ a nationwide campaign to help introduce millions of students to programming during Computer Science Education Week.

AIM supports these efforts and urges the private and public sectors to expand such creative initiatives to benefit the entire commonwealth. We also look forward to working with education officials on ideas to integrate computer science courses into the high school curriculum and to convince students and parents that advanced manufacturing represents a challenging and rewarding path to success.

The alternative is a future in which high-octane companies run out of the human fuel they need to remain in the innovation fast lane.

Our challenge today is to maintain the growth we have finally achieved, accelerate it, and create the millions of new jobs we still badly need. We must embrace and expand policies to drive growth; and reform or modernize policies that threaten to choke it off.

Christopher P. Geehern is executive vice president for marketing and communications for Associated Industries of Massachusetts; to learn more about AIM, go online toaimnet.org

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