Boston Federal Reserve Bank: New England Transformed 2010

8/6/2019 Boston Federal Reserve Bank: New England Transformed 2010

1/148 Federal Reserve Bank of Boston

NEW ENGLANDTransformed

In April 1975, I joined the Federal Reserve Bank o

Boston as an economist specializing in regional is-

sues. New England and the nation were just reach-

ing the bottom o a very severe recession, with signs

o recovery not yet evident. Te 1973-75 recession

had been deeper in New England than the nation,and the regions recovery was expected to be slower.

Worse, New England had seen its per capita income

slip relative to the rest o the country and was viewed

as an old region, with an industry mix heavily ori-

ented to uncompetitive and declining industries.

oday, we still speak about New England be-

ing old, but now the ocus o concern is the age o

the population. We are less worried about our ability

to compete or industries than our ability to attract

and retain young people. New England, especially

the Greater Boston area, has built a reputation orhaving reinvented its economy, and the region en-

joys the highest per capita income o any part o the

country. New Englands globally renowned research

universities and academic health centers have proven

to be powerul engines o growth, ostering innova-

tion and supporting sophisticated industrial clusters

in lie sciences and inormation technology and the

nexus between the two. Te region continues to ace

challenges, particularly in providing opportunities

or those who do not possess advanced education

and skills. But it has come a long way over the past

our decades.

Tis essay discusses some o the changes that

have occurred in New England over the past our

decades, comparing the challenges we aced in the

mid-1970s with those we ace today.

New England in the 1970s

In 1975, New Englands uture did not look promis-

ing. Employment growth since 1950 had allen well

short o that nationally.1 Te recession o 1970-71

had been more severe in New England than the na-

tion, and the regions recovery had lagged that o the

nation. Tis scenario seemed to be replaying itsel in

the 1973-75 downturn.

New England in 1975 was still contend-

ing with the legacy o its early industrialization.Manuacturing had ourished in New England

when most o the country was still dominated by

arming. Te regions early industrial start was the

oundation or its prosperity. But industries that

had been technological leaders in the 19th century

struggled to compete in the 20th frst, against

frms in other parts o the country and by the

1970s, increasingly against overseas competitors.

Yet so dominant had the textile and shoe industries

been in their heyday that even in the mid-1970s,

Lynn E. Browne

Executive Vice Presidentand Economic Advisor


2/142010 Annual Report 9

ater years o decline, they were still sizable al-beit declining employers. Newer, more vibrant

manuacturing industries, notably electronics and

aircrat engines, had emerged; but these were tied

to deense spending, which was sharply curtailed as

the Vietnam War wound down.

Adding to New Englands woes was the oil

embargo o 1973 and the resulting increase in oil

prices. New England was much more dependent

upon oil than the rest o the country, relying on

oil or heating and electricity generation as well as

or transportation. Elsewhere, natural gas and coal were more important uel sources or non-trans-

portation needs. Because o New Englands depen-

dence on oil, energy costs rose much more in the

region than in the country as a whole.2

Anxieties about the uture were particularly

acute in Massachusetts and Rhode Island. Both

states had been centers or the textile industry. Both

states were severely aected by the closing o mili-

tary bases in the early 1970s. Both states had devel-

oped reputations as hostile to business, and Massa-



chusetts had acquired the nickname axachusetts

or its high tax burden.

Competition or manuacturing jobs rom

Sunbelt states in the South and West was a keyconcern, but competition within the region was

also an issue. New Hampshire had been growing

more rapidly than the rest o the region. While

New Hampshires success was commonly attrib-

uted to its low taxes and a pro-business attitude,

many in Massachusetts thought that New Hamp-

shire took advantage o its proximity to its larger

neighbor and the more generous public services

provided by Massachusetts.

Some things change;

some things stay the same

Te precarious state o New Englands uture in 1975

seemed to be summarized by the decline in its per cap-ita income rom 109 percent o the national average in

1970 to 103 percent in 1975.3 Despite the challenges

o the post World War II years, per capita income in

New England had remained close to 10 percent above

the national average. But now, New England was los-

ing ground. And the southern states were making rapid

gains. Would New England and the South trade plac-

es?4 Tis was more than a purely economic issue.

In act, the Souths role in the nation has grown

while New Englands shares o U.S. employmen



and population have declined rom 6 percent in

1970 to 5 percent today. But in terms o income,

New England has perormed extraordinarily well. Per

capita income in New England in 2010 is 20 percent

above the national average, the highest o any major

region o the country. Some will note correctly

that the cost o living is higher in New England

than in much o the country; so per capita income

overstates the regions economic well-being. But the

high cost o living in New England was also a lament

in 1975, when relative incomes were much lower.

What went right in New England? Among the

developments contributing to New Englands relative

prosperity were

rising educational attainment in the region;

relatively strong economic growth in the late

1970s and 1980s; and

slow population growth in the 1990s and 2000s.

Te regions research universities have been impor-

tant engines o growth, and new industrial clusters

have emerged based on concentrations o advanced

skills and knowledge sets.

Rising educational attainment

Educational attainment was higher in New Eng-

land than the nation in 1970, but not strikingly so.

Despite a concentration o prestigious colleges and

universities in the region, the raction o the adult

population in New England with at least a bachelors

degree was only 12.1 percent compared with 10.7percent nationwide.5 Massachusetts and Connecti-

cut had larger ractions o college-educated adults

than the nation, but the college shares in Rhode Is-

land and Maine were below average.

Over the next three and a hal decades, New

Englands margin o superiority widened even as

educational levels rose everywhere. As o 2008,

35 percent o adult New Englanders had college

degrees, compared with a national share about

28 percent.6 O the six New England states, only

Maine was below the national average. Further-more, New Englands college graduates were more

likely than their counterparts nationally to have

advanced degrees.

Since college graduates earn substantially more

than high school graduates and since this college

premium has increased since the 1970s, rising edu-

cational attainment might seem a sucient explana-

tion or New Englands high relative income.7 How-

ever, the timing does not match. Te bulk o New

Englands income gains occurred in the 1980s, while

its educational level has continued to increase rela-

tive to that elsewhere.

It is probably more accurate to say that New

England enjoyed a burst o growth rom the late

1970s to the late 1980s that boosted productivity

and incomes. Subsequently, despite episodes o eco-

nomic stress, New England was able to maintain its

position because educational attainment continued

to rise and labor orce growth slowed.

Advances in educational attainment did more

than impart skills to the workorce. Higher levels o

education acilitated the emergence o new industri-

al clusters based on state-o-the-art technology and

concentrations o highly educated workers. Among

these were computers and related manuacturing

industries in the 1970s; sotware and inormation

services in the 1980s; and more recently, lie sciences

activities. Additionally, throughout this period, ele-

ments o New Englands fnancial services industry

have been on the oreront o both fnancial inno-

vations and inormation management. All o these

industry groups compete nationally and internation-

ally; productivity and pay are high. But they are not

immune rom recession or competitive challenges.

Te transormation o New England has not made

it recession-proo. And in times o alling labor de-

mand, net outmigration has acted as a saety valve,

supporting wages and income levels.

A short history

While not obvious at the time, 1975 was a turn-

ing point or New England. Te region recovered

strongly rom the recession and enjoyed relatively

vigorous growth or the ollowing ten years. Te

economic challenges o the frst part o the 1970s

had overshadowed the emergence o a new set o

frms and industries that came to be characterized

as high technology industries. Te quintessential

high tech industry was the minicomputer industry,

which ourished in the Greater Boston area and

southern New Hampshire. But much o the regionsaw growth in manuacturing frms employing large

numbers o scientists and engineers.

Te rise o high tech in New England has been

chronicled in many places.8 echnological advances

at the regions universities, oten sparked by deense-

related research, and the entry into the labor orce o

highly educated baby boom workers were key driv-

ers. Not only did the rise o high tech contribute

directly to the regions prosperity, but it also changed

New Englands image in a undamental way: a re-



gion once seen as stagnant came to be viewed as dy-

namic and innovative.

New England lourished. Governor Dukakis

o Massachusetts ran or president in 1988 on

the basis o the Massachusetts Miracle and the

states transormation into a national and global

high tech leader. Per capita income in New Eng-

land in that year was 120 percent o the national

average.9 he regional unemployment rate was

3 percent.10

Increasing prosperity drove up housing prices.

In the Boston area, the median sales price o an

existing single amily home rose rom about 20 per-

cent above the national average in 1983 to double

the national average in 1988.11 Construction took

o, not only or housing but also or oce, indus-

trial, and commercial buildings.

And then the boom imploded. Construction had

surged ahead o more undamental drivers o the New

England economy. High tech had begun to struggle in

the mid-1980s, as the minicomputer companies suc-

cumbed to competition rom personal computers and

as the Reagan deense build-up came to an end. Over-

all growth remained strong, however, as construction

had taken over as an economic driver in its own right

But when construction began to alter, the underlying

weakness in undamentals was exposed. Te altering

became a plunge, and a host o construction-related

industries were dragged down. Housing prices ell

Commercial property values collapsed. Many New

England banks, which had lent heavily against real es-

tate, ailed. Banking problems in turn aected credi

availability and added to the challenges already acing

New England businesses.

with very high pay levels, the

securities industrys contribu-

tion to earnings is much larg-

er than its contribution to

jobs. proessional and techni-

cal services, especially comput-

er systems design; inormation;

and education and healthservices all perormed well



While the recession o 1990-91 was relatively

mild in the country as a whole, or New England

it was a regional version o the Great Recession o

2007-2009. Wage and salary employment in the

region ell 10 percent.12 Declining housing prices

caused oreclosures to soar, as homeowners who losttheir jobs and could not make their mortgage pay-

ments could neither sell nor refnance. People moved

out and migration into the region ell o.13 Tis

population outow and the resulting slow growth in

the regional labor orce helped cushion the eect o

the allo in labor demand.

New England saw a gradual return to prosper-

ity as the decade o the 1990s unolded. Driving

the recovery were a more diverse group o indus-

tries than the high tech manuacturing and services

that had been so important in the 1970s and 1980s.

Financial services, especially the securities industry,

grew vigorously in southwestern Connecticut and

Greater Boston. With very high pay levels, the se-

curities industrys contribution to earnings is much

larger than its contribution to jobs. Proessional andtechnical services, especially computer systems de-

sign; inormation; and education and health services

all perormed well. Massachusetts, in particular, was

on the oreront o both the dot.com and telecom-

munications booms.

By 2000, New England seemed to be on top

again. Te regions per capita income was 20 per-

cent above the national average; the regional unem-

ployment rate was 2.8 percent the lowest in the

country.14 Housing prices in much o the region had



recovered in nominal terms, and the rate o appreci-

ation was beginning to accelerate. Te manuactur-

ing sector, however, remained severely challenged.

In 2000, New England had only 1 million manuac-

turing jobs, compared with 1 million twenty years

earlier. Job losses were widespread and included

sophisticated industries like computers and aircrat

engines as well as lower-skill, lower-wage industries.

Since the middle o the 19th century, the New Eng-

land economy had been distinguished by the high

raction o its workorce in manuacturing. In 1980,

24 percent o employment in New England was in

manuacturing, compared with 18 percent nation-

ally. But in 2000, manuacturings share o employ-

ment had allen to roughly 12 percent in both the

region and the nation.15

Te 2001 recession hit Massachusetts hard.

Te rest o New England ared about the same as

the nation. But cutbacks in spending on technol-

ogy equipment and sotware ater the Y2K date

change, the bursting o the dot.com bubble, and the

stock market decline all aected sectors important

to Massachusetts. Once again, the combination o

economic distress in Massachusetts and better cir-

cumstances elsewhere in the country triggered out-

migration, cushioning the rise in unemployment.

In contrast with the experience in the early 1990s,

the regional housing market remained very strong.

Homeowners could easily sell and move to regions

o greater opportunity.Recovery was slow. Education and health care,

proessional and technical services, the securities

industry and real estate provided most o the jobs.

Manuacturing employment continued to decline.

And then came the Great Recession. Although

not quite as severe in New England as the nation,

the recession showed the same general pattern in

both. Te experience o individual New England

states varied considerably. For two years, Rhode Is-

land had the second or third highest unemployment

rate o any state, while unemployment rates in NewHampshire and Vermont were consistently lower

than rates in most states. Notably, Massachusetts

ared somewhat better than the nation, in contrast

with the recessions o 1991 and 2001. Also in con-

trast with the experience in the two preceding reces-

sions, outmigration rom New England did not in-

crease. Economic conditions in most o the country

were no better than in New England; and in some

states that had been avored destinations or New

England residents, conditions were substantially

worse. At the end o 2010, New England like the

nation was seeing a slow recovery.

Where are we now?

Clearly, New England cannot be considered a de-

clining region today. While its shares o U.S. popu-

lation and employment have declined, New Eng-

land has had the highest income o any part o the

country or the past twenty-fve years. For much o

that time, the regions unemployment rate has been

below the national average.

Nevertheless, New England aces signifcan

challenges. Many observers o the New England

economy are concerned about the regions slow pop-

ulation growth and advancing age. Te median age

in all six New England states is above the nationa

average. By this measure, Maine and Vermont are

the oldest and second-oldest states in the country

and New Hampshire ranks ourth.16 Te explana-

tion is not that the raction o older people in New

England is so much higher than elsewhere. It is

higher; but a bigger dierence is the smaller raction

o the population in New England that is under 18

years o age. Ater the baby boom, birth rates el

more in New England than in the rest o the country

and they have remained low ever since.

Aging population

Te aging o the New England population raises

several concerns. Many worry that an older popula-tion will have health care and other service needs

that will place a fscal burden on state governments

Growing numbers o state and local government

retirees will also strain state and local government

budgets. Interestingly, there is little discussion o the

implications o the regions relatively small popula-

tion o children. In considering the demands or

government services, it seems logical to consider

both ends o the age spectrum. One would think

that ewer children would translate into less pressure

on school budgets. Te totaldependency ratio, thatis the ratio o the number o people too old and too

young to work to the number o people o working

age, is actually lower in New England than in most

o the country.17

Another concern is that the aging o the New

England population will result in labor shortages

that could crimp the regions uture growth. Te

availability o highly educated labor is considered

to be one o New Englands key competitive advan

tages; and as noted above, the entry into the labor



orce o highly educated baby boomers trained in

state-o-the-art computer and other technologies is

thought to be one o the reasons or the owering

o high tech industries in the region in the 1970s.

Tese baby boomers are now reaching retirement

age, raising the prospect o uture shortages o skilled

workers, with negative implications or the regions

competitive position.

Over the past twenty years, however, New Eng-

land has had to contend more with a shortage o jobs

than a shortage o workers. Tere have been three se-

vere recessions. wo o these, the recessions o 1991

and 2001, were deeper and longer in the region than

the nation, contributing to net outmigration to the

rest o the country. Given this history o weak labor

demand and an unemployment rate in 2010 o over

8 percent, some New England workers might see the

pending retirement o the baby boomers as a posi-

tive development enhancing their own employ-

ment and earnings prospects.

Alicia Sasser Modestino o the Boston Fed re-

cently examined in detail the potential or labor

orce shortages in New England. She ound that

the potential or shortages is greatest in the mid-

skill range in occupations requiring an associates

degree or equivalent, rather than at the upper end.

Tese middle level skills are especially prevalent in

health care and in oce and administrative support

occupations. Te overall potential or shortages is

most pronounced ater 2020.Although Modestinos projections suggest that

the supply o higher skill workers may be adequate,

at least in the aggregate, her analysis ags some wor-

risome developments. First, even in the recession

year o 2009, vacancy rates or computer-related oc-

cupations, engineers, and scientists were quite high.

And beore the recession, vacancy rates were very

high. While employment in high technology manu-

acturing and related services industries has allen in

recent years, high vacancy rates in key occupations

raise the question o whether the competitive posi-tion o these industries has been adversely aected

by shortages o specialized labor.

Perhaps o even greater concern are projections

o uture labor supply that show minimal increases

in overall educational attainment. Minorities, espe-

cially Latinos, will be an increasing share o the labor

orce, both in New England and nationally. Because

minorities have lower education levels than whites,

this demographic shit is projected to limit increas-

es in overall educational attainment even al-

The Old, the Young, and Age Dependency Ratio

New England and Selected States

12.9U.S.

CT

ME

MA

NH

RI

VT

FL

TX

UT

13.9

15.6

13.6

0 20

14.3

14.5

17.2

10.3

9.0

Share of the population age 65 and over

13.5

24.3U.S.

CT

ME

MA

NH

RI

VT

FL

TX

UT

23.0

20.6

21.7

0 35

21.5

20.3

21.9

Share of the population age 18 and under

21.8

59.2U.S.

CT

ME

MA

NH

RI

VT

FL

TX

UT

58.5

56.7

54.6

0 80

55.8

53.4

64.2

61.6

67.2

Total age dependency ratio

54.6

31.2

27.8

Source: U.S. Census Bureau, Annual Estimates of the Resident Population

by Sex and Age for States and for Puerto Rico, April 1, 2000 to July 1, 2009,

June 2010, Table 16.



lowing or increasing educational gains among

minority populations.18 New England should main-

tain its educational advantage relative to the nation,

but it seems unlikely to make much progress relative

to its own past perormance.

Why is this worrisome in the absence o project-

ed shortages o high-skill workers? Because the sup-

ply o high-skill workers can create its own demand.

Te emergence o high technology industries in the

mid-1970s was not a continuation o past trends.

Te entry into the labor orce o the highly educated

baby boomers played a key role in these industries

development. Further, concentrations o highly edu-

cated individuals rom diverse felds can create a cul-

ture o innovation in which dierent perspectives

experiences, and expertise come together to generate

new ideas that, in turn, lead to new opportunities

Tis networking is most oten associated with Sili-

con Valley; but New England, especially the Boston

area, has also benefted rom this phenomenon.19

Te regions research universities and, increas-

ingly, their aliated medical schools, have been

important sources o innovative technologies that

have ormed the basis or new frms. Tese institu-

tions are magnets or top students and researchers

rom across the country and around the world. Wil

these students and researchers choose to stay in New

England? And i they choose to become entrepre-



neurs, will they locate their businesses in the region?

Research, again by Alicia Sasser Modestino, shows

that New Englands retention rate or non-native

graduates is relatively low.20 Moreover, oreign nation-

als, who compose a substantial raction o the gradu-

ate-student population, ace ormidable hurdles when

they seek to become permanent residents. However, a

recent study o entrepreneurship at the Massachusetts

Institute o echnology (MI) indicates that MI,the institution with the strongest reputation or gen-

erating new frms, remains an active source o new

technology-based start-up businesses, many in close

physical proximity to the universities.21Furthermore,

other universities in the region are actively trying to

emulate MI in this regard.

Decline of manufacturing

While highly skilled workers have generally pros-

pered in New England, workers without a college

education have ound their opportunities increas-

ingly constrained.

Te number o manuacturing jobs in New Eng-

land has allen by roughly hal since the mid-1980s.

For the past ten years, manuacturing employment

nationally has also been alling rapidly. High pro-

ductivity growth has contributed to the decline in

manuacturing jobs. But in addition, manuactur-

ers in both the nation and New England have lostground to oreign competitors. In the past ten years,

in industry ater industry, employment has allen

sharply as imports have soared.

Historically, manuacturing production oered

relatively high-wage jobs or people who lacked or-

mal education. Construction, although a much small-

er industry than manuacturing, was another option.

However, with the Great Recession o 2007-2009,

construction jobs plummeted. Men have been espe-

cially aected by the employment declines in both

the regions universities and,

increasingly, their afliated

medical schools, have been

important sources o innova-

tive technologies. . .these in-

stitutions are magnets or

top students and researchers

rom across the country

an d ar o u n d t he wo r l d.



industries. And or many men who have lost their jobs

in these industries, the alternatives are not promising.

Opportunities to match the wages that they enjoyed

in manuacturing and construction are ew. Jobs pay-

ing comparably require more ormal education.

More generally, educational attainment has not

increased as much among men as among women.

Te ramifcations o this situation are potentially

ar reaching. Te lower levels o education among

men, especially minority men, and the poor earn-

ings prospects o men who lack college are thought

to contribute to lower marriage rates.22 Low mar-

riage rates are, in turn, associated with more chil-

dren born outside o marriage, more single-parent

amilies, and higher rates o poverty.

Poverty rates in New England

Poverty rates in New England are lower than nation-

ally by a considerable margin. All six New England

states were below the national average in 2008, with

New Hampshire having the lowest poverty rate o

any state. But in some cities and towns poverty rates

are high. Poverty rates are especially high, over 25

percent, in some o the regions ormer manuactur-

ing centers Hartord, Providence, Lawrence, and

Springfeld.23 Tis geographic concentration o the

poor creates negative spillovers that tend to be sel-re-

inorcing poor schools, higher crime rates, poorly

maintained buildings and inrastructure. Communi-

ties with high concentrations o poverty ace higherdemands or public services, while at the same time

local property tax and other resources are limited.

State governments have provided some relie through

local aid, but their ability to help has been severely

constrained in recent years by the Great Recession.

It could have been worse

Some challenges that seemed pressing in 1975 have

either diminished or their consequences have been

less dire than eared. Te high cost o energy and

New Englands dependence on imported oil are a

case in point. In 1975, the nation had just gone

through an oil embargo that caused huge lines at

gasoline stations and a sharp spike in oil prices

Because New England was much more dependent

upon oil than the nation, many eared that higher

oil prices would cripple the regions economy. Bu

these ears have not been realized.

Conservation and increases in energy eciency

helped, as did the act that New England industries

were generally less energy intensive than industrie

nationally. Federal deregulation o natural gas prices

led to increases in the supply o natural gas national-

ly and, eventually, in New England. Nuclear power

plants that were under construction or in the plan-

ning stages in 1975 were completed and contributed

importantly to the regions energy mix.

At times, over the next three decades, concerns

about the adequacy o energy supplies, especial-

ly electricity, would intensiy and lead to calls or

aggressive action. But to date, ways have been ound

to meet New Englands needs without draconianconservation measures, controversial new construc-

tion, or serious consequences or the regions eco-

nomic growth. Tis is not to suggest that more

should not be done to encourage conservation or to

develop new energy alternatives. Rather, the point is

simply that, to date, this has been a more manage-

able problem than was eared in 1975, and many o

the energy issues conronting New England today

including how to address concerns about carbon

emissions, are not unique to the region.24

Another problem that seems to have recededis New Englands reputation as a high-tax region

hostile to business. Tis perception was attributable

in large measure, to Massachusetts. Each o the six

New England states has a dierent political environ-

ment and a dierent strategy or encouraging eco-

nomic development. But with hal o the regions

population and economic activity, Massachusetts

image tends to dominate. Moreover, some eatures

o doing business in Massachusetts are mirrored in

other states. All o the New England states are char-

75 80 85 90 95 00 05 10

New England State Per Capita Income

Relative to the National Average, 1975-2010

Percent of National Average

150

130

110

90

70

Source: Bureau of Economic Analysis, U.S. Department of Commerce.

Note: Shaded areas indicate recessions.

Connecticut

Maine

Massachusetts

New Hampshire

Rhode IslandVermont

New England



acterized by small municipal jurisdictions that wield

considerable power. Environmental considerations

and community character matter a lot in New Eng-

land; so the process o securing building and other

permits can be arduous. Political leaders in New

England recognize the benefts o a streamlined ap-

proach, but local control is also much valued.

In 1975, many businesses leaders regarded Mas-

sachusetts as a pro-labor, anti-business state. Mas-

sachusetts had also embraced the Great Society with

enthusiasm, expanding the social saety net and, in

the process, increasing taxes.

o some extent, hostility to business was under-

standable, given a long history o disinvestment by

the once dominant textile industry. However, with the

emergence o the minicomputer and other high tech

companies, a new group o business leaders came to the

ore. Tese leaders aggressively pushed a more pro-busi-

ness agenda, promising to create large numbers o high-

paying jobs in return and or a time, they delivered.

A key element o their agenda was lower taxes.

Tere was also growing grassroots support or lower

taxes, inspired in part by the example o Calior-

nias Proposition 13. In 1980, Massachusetts voters

passed a reerendum limiting property taxes to 2

percent o property values. Proposition 2 rede-

fned the tax situation in Massachusetts, exerting a

restraining inuence that remains to this day. At the

same time, the Commonwealth began to promote

itsel as a business-riendly, technologically savvyplace. Political leaders, as well as the public, em-

braced the dynamic, can-do image.

Te recession o 1990-91 brought a hard end to

the Massachusetts Miracle and threatened to revive

old hostilities. Instead, however, political leaders o

dierent stripes came together and made a number

o tax and other changes intended to make the state

more attractive to entrepreneurs and investors. o-

day, Massachusetts tax burden compares avorably

with that in most states.25 However, while the real-

ity has changed, Massachusetts may never be able toshed its catchy nickname as axachusetts.

Conclusions

New England is a dierent place today than it was

back in 1975. Notably, New England has demon-

strated an ability to prosper despite setbacks. Both

in reality and in its image, New England has been

transormed rom a region dependent on older, tra-

ditional manuacturing industries to one that sus-

tains itsel through knowledge-intensive activities.

Tis transormation began with the simultaneous

owering o computer-based high technology in-

dustries and the entry into the labor orce o young,

energetic, highly educated baby boomers.

Now, the most pervasive concerns in the region

center on the implications o the aging o the popu-

lation. Some o the concern is based on the demand

or services that an older population may impose.

Some o the concern ocuses on the possibility o

labor shortages. Perhaps a bigger issue, however, is

whether a projected leveling o in the regions edu-cational attainment will adversely aect the regions

capacity or innovation.

Te loss o manuacturing jobs was a concern

in 1975, and it is a concern today but with a di-

erence. Tirty-fve years ago, the primary ear was

competition rom the Sunbelt states o the South

and West. oday, both New England andthe nation

are challenged by aggressive and increasingly inno-

vative global competitors. Energy, which seemed a

critical problem or the region in the 1970s, remains

a concern; but the dire consequences that seemedimminent have not materialized and New Englands

biggest challenges are, again, shared by the rest o

the country.

As I look back over the past thirty-fve years, I

am struck, frst, by New Englands ability to adapt to

changing circumstances and, second, by how quick-

ly and unexpectedly circumstances can change.

JAN1975

JAN1980

JAN1985

JAN1990

JAN1995

JAN2000

JAN2005

JAN2010

Monthly Unemployment Rate, 1975-2010

United States, New England, and Massachusetts

Percent

14

12

10

8

6

4

2

Source: Bureau of Labor Statistics and New England Economic Indicators.

Note: Shaded areas indicate recessions.

United States

New England

Massachusetts



Endnotes1 Lynn E. Browne, Te Impact o Industry Mix on New Eng-

lands Economic Growth since 1950, Federal Reserve Bank

o Boston, New England Economic Indicators, April 1977.2 Robert Eisenmenger and Richard Syron show the ratio

o energy costs to manuacturers in New England to the

cost to manuacturers in the rest o the United States rising

rom 1.5 in 1971 to 2.3 in 1974 in Te Energy Crisis and

New Englands Economy, New England and the Energy

Crisis, Federal Reserve Bank o Boston, Proceedings o a

Conerence held in October 1975.3 Calculated rom data in the Bureau o Economic Analy-

sis, Regional Economic Accounts at http://www.bea.gov/

regional/spi/action.cm as ound on February 17, 2011.4 See, or example, projections by the BEAs Regional Eco-

nomic Analysis Division in Regional and State Projec-

tions o Income, Employment and Population to the Year

2000, in the Survey of Current Business, November 1980.

New Englands per capita income alls to 98 percent o the

national average by 2000, while per capita income in the

Southwest rises to 98 percent. Te Southeast remains the

lowest income region.5 Yolanda K. Kodrzycki, New Englands Educational Ad-

vantage: Past Successes and Future Prospects, New Eng-

land Economic Review, January/February 2000, able 1.6 State educational attainment is rom the U.S. Census Bu-

reau, Statistical Abstract of the United States, 2011, able

229, p. 151. New England fgures are calculated by weight-

ing state attainment by populations age 25 and above rom

U.S. Census Bureau, Annual Estimates o the ResidentPopulation by Sex and Age or States and or Puerto Rico:

April 1, 2000 to July 1, 2008 as ound at http://www.

Census.gov/popest/states/asrh/SC-ES2008-02.htm.7 See calculations o the change in the college premium since

1980 in Figure 6 in Alicia Sasser Modestino, Mismatch in

the Labor Market: Measuring the Supply o and Demand

or Skilled Labor in New England, Federal Reserve Bank

o Boston New England Public Policy Center, Research

Report No. 10-2, 2010. Available at http://www.bos.rb.

org/economic/neppc/researchreports/2010/rr1002.htm.8

See, or example, Lynn Elaine Browne and Steven Sass,Te ransition rom a Mill-based to a Knowledge-based

Economy: New England, 1940-2000, Engines of En-

terprise: An Economic History of New England, ed. Peter

emin. (Harvard University Press, 2000).9 From BEA Regional Economic Accounts at http://www.bea.

gov/regional/spi/action.cm as ound on February 17, 2011.10 Federal Reserve Bank o Boston, New England Economic

Indicators, First Quarter 1990, Historical Data, p. 26.11 Data rom National Association o Realtors as ound in the

Federal Reserve Bank o Boston, New England Economic

Indicators, First Quarter 1990, Historical Data, p. 31.12 Te recession started earlier and lasted longer in New

England. BEA wage and salary employment in New Eng

land (NAICS) ell 10 percent rom 1989 to 1992. Data

rom the regional data base in HAVER Analytics as o

February 17, 2011.13 Figure 4 in Alicia Sasser, Voting with Teir Feet

Local Economic Conditions and Migration Patterns in New

England. Federal Reserve Bank o Boston New England

Public Policy Center, Working Paper No. 09-1, 2009. Avail

able at http://www.bos.rb.org/economic/neppc/wp/2009

neppcwp0901.htm.14 Per capita income rom http://www.bea.gov/regional

spi.drill.cm and unemployment rate rom http://www

bls.gov/news.release/History/srgune_02232001.txt as o

February 22, 2011.15 Calculated rom ull and part-time employment data (SIC

in the BEA Regional Economic Accounts at http://www

bea.gov/regional/spi/action.cm as ound on February 18

2011. Tese calculations reer to total employment, in

cluding sel-employed. For wage and salary employment

manuacturing accounted or 26 percent o jobs in New

England in 1980 and 14 percent in 2000; in the United

States, manuacturing accounted or 21 percent o wag

and salary jobs in 1980 and 13 percent in 2000.16 U.S. Census Bureau, Annual Estimates o the Residen

Population by Sex and Age or States and or Puerto Rico

April 1, 2000 to July 1, 2009, able 16 at http://www

census.gov/popest/states/asrh/SC-ES2009-02.html aound on February 17, 2011.

17 U.S. Census Bureau American FactFinder, GC-6-R

Age Dependency Ratio o the otal Population, Dat

Set: 2009 Estimates, http://actfnder.census.gov/servlet

GCable?ormat=U-40Se&geo_id=01000US&ds_

name=PEP_2009_ES&_box_head_nbr=GC-6-R a

ound on February 22, 2011.18 Modestino, Mismatch, (2010), able 7 and Stephen

Coelen and Joseph B. Berger, New England 2020:A Fore

cast of Educational Attainment and its Implications for the

Workforce of New England States, (commissioned by thNellie Mae Foundation, June 2006).

19 See Robert Krim et al., Innovate Boston: Shaping the Fu

ture from the Past: Four Amazing Centuries of Innovation

Boston History and Innovation Collaborative, 2006. Avail

able at http://www.bostonhistorycollaborative.org/pd

InnovateBoston.pd. Section II is particularly relevant.20 Alicia Sasser, Te Future o the Skilled Labor Force in New

England: Te Supply o Recent College Graduates, Federa

Reserve Bank o Boston New England Public Policy Cente

Series, Research Report No. 08-1 (2008) able 8. Availabl


14/14

at http://www.bostoned.org/economic/neppc/research

reports/2008/rr0801.pd on February 22, 2011.21 Edward B. Roberts and Charles Eesley, Executive Summary

Entrepreneurial Impact: Te Role of MI,Kauman Founda-

tion, February 2009. Available at http://entrepreneurship.mit.

edu/sites/deault/fles/fles/ExecSummary_Entrepreneurial_

Impact_Te_Role_o_MI.pd on February 22, 2011.22 DVera Cohn and Richard Fry, Women, Men and the

New Economics o Marriage, Executive Summary, Pew

Research Center, Social & Demographic rends, Janu-

ary 19, 2010. Available at http://pewsocialtrends.

org/2010/01/19/women-men-and-the-new-economics-

o-marriage/ on December 10, 2010.23 Tese are poverty rates or individuals. Te U.S. rate in

2008 was 13.2 percent; New Hampshires rate was 7.6

percent. U.S. Bureau o the Census, Te 2011 Statistical

Abstract as ound at http://www.census.gov/compendia/

statab/cats/income_expenditures_poverty_wealth.html

on February 22, 2010.24 In 2008, the six New England states and our Atlantic

states signed the Regional Greenhouse Gas Initiative

(RGGI), a regional version o cap and trade proposals that

have been very contentious at the national level.25 In 2008, state and local taxes as a percent o personal in-

come were 10.5 percent in Massachusetts, compared with

11.3 percent nationally, and the Commonwealth ranked

38th among all states and the District o Columbia. In

1977-78, in contrast, state and local taxes were 13.7 per-

cent o personal income in Massachusetts, compared with11.2 percent nationally, and the state ranked third in its

tax burden. Not all the New England states moved in the

same direction, however. Te tax burden has increased in

Maine and Connecticut since the 1970s. New Hamp-

shire remains very low. Source: Massachusetts Budget and

Policy Center data in presentation by Michael J. Widmer,

Massachusetts axpayer Foundation, to the Common-

wealth Summit, January 29, 2011.

Documents

Boston Federal Reserve Bank: New England Transformed 2010