The technological innovation that drove Greater Boston’s boom in the 1990s continued to evolve, creating a more competitive global environment.  Boston continues to offer great competitive advantages through its concentration of higher education institutions and knowledge workers, research and development capacity, and venture capital.  Yet lower-cost US regions are competing for its knowledge-economy jobs.  In addition, the emerging economies of China, India, and Eastern Europe, with growing numbers of highly-educated knowledge workers, particularly in engineering and the sciences (where the US is weak), are attracting investment capital, research and development capacity, and increasingly sophisticated jobs and industry sectors. Greater Boston is also experiencing the effects of industry consolidation, outsourcing, and off-shoring.

Boston and Greater Boston experienced a four-decade shift from a manufacturing to knowledge-based economy, with rising educational attainment levels driving individual economic outcomes. Between 1970 and 2000, Boston lost nearly 36,000 manufacturing jobs, shifting manufacturing’s share in total city employment from 12% in 1970 to 4% in 2000, with a further loss of over 6,000 jobs since 2001, reducing the manufacturing share of Boston’s employment to 2% in 2006.  The shift favored those best prepared for professional jobs.  Between 1989 and 1999, real mean income in Boston rose by 25% for those with a bachelor degree or higher, but fell by 3% for individuals with only a high school diploma or some college education.  In the Boston Metro region, higher education attainment rates rose from 10.4% in 1970 to 38.7% in 2005, and Massachusetts ranks highest among all states in educational attainment.  However, with increasing competition, Greater Boston now ranks only 5th among large US metros for bachelor’s degree holders, while Boston ranks 13^th among US cities (See Indicator 3.5.1).

Consumer prices in Metro Boston are rising faster than the metropolitan average, making Greater Boston one of the most expensive regions in the nation and making it difficult for many households to make ends meet. Metro Boston’s Consumer Price Index rose 33% from 1997 to 2006, faster than the U.S. urban average of 26%.  Prices increased for every major spending category except durable goods and apparel.  Energy costs increased the most (93%) during this period.

Boston experienced a boom and bust cycle but its economy is now strengthening.  The Boston Redevelopment Authority (BRA) reports that between 1992 and 2000, Boston added over 100,000 jobs and grew at an annual growth rate of 2.8% to reach 550,896 jobs.  Yet the city began losing jobs early in the recession of 2001. Between 2002 and 2004, Boston lost about 25,500 payroll jobs, or 5%.  The employment picture has begun to turn around, as the city regained 13,000 jobs from 2004 to 2006.

• According to Massachusetts Department of Workforce Development data, during 2001 to 2004, there were job losses in almost every employment sector, with the notable exceptions of health care (+8%) and post-secondary education (+6%).
• Most sectors have seen a recovery since 2004, but Leisure and Hospitality is the only sector that has completely recovered the jobs lost during the recession.  Manufacturing & Trade and Transportation & Utilities continue to lose jobs, with a loss of over 17,000 jobs since 2001.
• Unemployment rates in the City of Boston declined 8.6% in 1991 to 3.0% in 2000, then increased to 6.5% in 2004 before falling back to 5.2% in 2005.  Unemployment remained steady, at 5.3%, in 2006.  Metro Boston’s unemployment rate has followed a similar path, increasing from 2.6% in 2000 to 5.7% in 2004, and falling back to the 4.5%-4.6% range for 2005 and 2006 (See Indicator 3.3.2).

Boston’s office vacancy rate increased dramatically in the first part of the decade, but has begun to fall.  Corporate acquisitions, law firm consolidations, and financial firm mergers earlier in the decade led to a loss in jobs and business headquarters, with a sharp increase in available commercial office space.  According to  CB Richard Ellis, the City of Boston’s office vacancy rate increased from 1.5% in 2000 to 8.3% in the 3^rd quarter of 2001.  The vacancy rate peaked in 2003 at 13.8% and has since fallen to 8% in the 4^th quarter of 2006, and Boston’s office vacancy rate was considerably lower than the 15.8% in Boston’s suburbs, and among 43 major US downtown office markets, Boston had the 6^th lowest office vacancy rate.

Newcomer immigrants account for essentially all of Boston and MetroBoston’s population and workforce growth.

• Boston's population grew by less than 15,000 over the 1990s.  However, the number of recent foreign newcomers to Boston (those who arrived in the US between 1990 and 2000), increased by nearly 74,000 over the decade.  Without those newcomers, Boston's population would have declined by about 59,000.
• This trend has continued into this decade.  Boston’s population increased by 7,497 people from 2000 to 2005, and of Boston’s total 2005 population, more than 39,000 new residents had come to the US since 2000.
• Foreign immigration is also driving population and workforce growth in the entire region.  According to the Census Bureau’s American Community Survey, the Boston-Cambridge-Quincy MA-NH Metropolitan Statistical Area gained about 167,000 newcomers between 2000 and 2005.
• Between 2002 and 2005, the Census Bureau reported that the number of people between the ages of 20 and 64 in Massachusetts declined 0.3%, with white (non-Hispanics) decreasing 2% and African Americans decreasing 1.2%.  Asians increased 13.9% and the number of Latinos increased 11.4%.  Without these working age people, Massachusetts would have experienced a much more dramatic decline in its labor force.

The Boston and Massachusetts labor forces began to grow in 2006 for the first time in 4 years,but demographic trends point to long-term workforce shrinkage.  The Massachusetts population is aging.  While North Carolina, Georgia and the Western states are beneficiaries of a growing, young population, Massachusetts has 20% fewer young people in 2004 than in 1990.  The Metropolitan Area Planning Council projects that the only growth in the Massachusetts populations between now and 2030 will be among those over the age of 55.  Already, the labor market has tightened.  New comparative data from the Conference Board of on-line job listings suggest that the market is tighter in Boston than in other major cities, indicative of a labor shortage.

The high number of new patents filed by Massachusetts universities, hospitals and research institutions are not translating into a commensurate number of innovation economy jobs. The Massachusetts Technology Collaborative continues to report that Massachusetts does not convert R&D to manufacturing as effectively as competitor states.  As a result, Massachusetts’ innovation economy continued to lose jobs from 2004 to mid-2006, down 7% from 2001, although there was a marked turnaround in sectors such as post-secondary education and scientific, technical & management services.

HIGHLIGHTS BY SUB-SECTOR

THE INNOVATION ECONOMY:The ten high tech "innovation economy" sectors tracked by the Massachusetts Technology Collaborative suffered job loss of 11.9% between 2001 and 2004 but between 2004 and the 2^nd Quarter of 2006, employment in these sectors grew 1.7%, led by 9.4% growth in the Scientific, Technical, & Management Services sector.  Boston actually faired better than the state during this period, having lost 11.6% of the jobs from 2001 to 2004, with a 4.7% increase in the 2004 to 2006 turn-around.  The Post-Secondary Education (+4.9%) and the Scientific, Technical, & Management Services (+9.4%) sectors posted net job growth from 2001 to 2006 (See Indicator 3.2.1).

Total federal R&D spending in the state’s academic and nonprofit research institutions climbed from $4.1 billion in 2001 to more than $5.2 billion in 2003, placing Massachusetts second only to California among Leading Technology States (LTS) in absolute spending, according to the Massachusetts Technology Collaborative’s 2006  Innovation Economy Index.  However, Massachusetts’ share of all university research has fluctuated.  The share of federal research funding awarded declined from nearly 7% in 1985 to 4.2% in 1999, increased to 5.8% in 2000 and has remained relatively flat, at 5.7% in 2003.  The Massachusetts Technology Collaborative 2006 innovation report found that Massachusetts university-based patent applications increased from 373 in 2000 to 580 in 2004.  Non-partisan research organization Mass Insight’s Global Massachusetts 2015 highlights the need for R&D strategic alliances to boost statewide competitiveness.  This includes partnerships among public and private universities, teaching hospitals, government and industry throughout New England.

ACADEMIC: R&DGreater Boston’s eight research institutions generate significant economic multipliers. A 2003 Appleseed report found that in 2000 — the height of the high tech boom — Greater Boston’s eight research universities provided a $7.4 billion boost to the regional economy, including work for 48,750 university employees and 37,000 additional workers in the region, a talent pool of more than 31,900 graduates, research that resulted in 264 patents and 280 commercial licenses of technology, 41 start-up companies, and continuing education for 25,000 non-degree students.  While this study has not been replicated, the post-secondary education sector was one of the only sectors to grow throughout the recent recession, adding 11% more jobs in Boston and 14% more jobs in Massachusetts from 2001 to 2006.

THE SERVICE SECTOR: Comprising education, health, professional and financial services, and hospitality—this was the only sector in Boston to gain jobs from 2001 to the 2^nd Quarter of 2006.  According to Department of Workforce Development data, this sector has been the engine of the 2004-2006 economic turn-around, adding 14,366 jobs and increasing from 58% of all employment in 2001 to 62% in 2006. Finance, insurance, and real estate accounted for most of the city’s job growth from 1970 to 2000, but fell slightly from 15.7% of employment in 2001 to 15.2% in 2006.  Boston’s health services sector represents more than one out of six city jobs (17.3%), with 94,732 people employed in 2006, including all employment in Boston’s 22 inpatient hospitals, 25 community health centers, nursing homes and community services.  This is a 13% increase in employment since 2001. However, this increase in employment in the health care sector is largely paid for by state and local government, businesses and households, and crowds out investment in other priorities.

THE LIFE SCIENCES:At 42,855, the Boston region had the highest life science employment base among 12 leading metropolitan areas, including biotechnology, medical devices and pharmaceuticals employment, according to a 2004 Milken Institute study. The BRA reports that while Cambridge is a center for many industries in the region, Boston has shown significant growth in life sciences growth, supported by new development such as the Bio-Square project in the South End. Massachusetts ranked number 1 on the Milken Institute’s biopharmaceutical Innovation Pipeline Index and number 1 in nanotechnology, according to Lux Research.  Massachusetts-based medical-device companies strengthened through large purchases in 2006.  Boston Scientific purchased defibrillator maker Guidant Corporation for $27 billion, Thermo Electron's $10.6 billion acquired Fisher Scientific, which was renamed Thermo Fisher Scientific to become the world's largest supplier of medical laboratory equipment.

THE NONPROFIT SECTOR: Boston’s large nonprofit sector, which includes its colleges and universities, teaching hospitals and major cultural institutions as well as community-based organizations and civic institutions, provides economic stability to the city and the region.  Boston and the surrounding municipalities of Cambridge, Newton, Somerville and Brookline contain more than 25% of the state’s nonprofit workforce, but less than 15% of the state’s workforce overall, according to a 2005 study by MassINC.  According to the 2005 American Community Survey, the nonprofit sector employs 15% of Boston workers, and 11% of Massachusetts workers, compared to 7% nationwide.  A network of community development corporations (CDCs) supporting neighborhood businesses and entrepreneurs is bringing economic vitality to Boston’s neighborhoods.

THE CREATIVE ECONOMY SECTOR:Seminal studies in the late 1990s highlighted the economic importance of Boston’s creative economy of arts and cultural organizations and private institutions, which provide a strong draw for tourism to the region.  The "creative cluster" of enterprises and individuals supplied 3.5% of New England’s total job base and an annual payroll of about $4.3 billion in 1997, according to a 2000 New England Council report. Nationally, Americans for the Arts cites a 24% increase from 2000 to 2005 in the economic impact of the arts.  From 2004 to the 3^rd Quarter of 2006, Boston’s Leisure and Hospitality sector has increased employment 6.9%, compared to an overall 2.9% increase in jobs in the city. Greater Boston’s leisure and business visitors increased from 14.56 million in 1999 to nearly 15.88 million in 2003, followed by an increase to 17.6 million in 2005, generating an economic impact of $9.8 billion in 2005, according to the Greater Boston Convention and Visitors Bureau.

THE GREEN ECONOMY: The Massachusetts Technology collaborative, which invests in clean tech and green building innovation, estimates that there are now about 10,000 jobs in Massachuetts green industries.  The Economy magazine predicts that Greater Boston is likely to lag only Silicon Valley in California in the percentage of venture investment in research and development as MIT, the University of Massachusetts and other centers of innovation ramp up in response to global warming concerns and greener business practices.