Boston Area Requires Training and Hiring Initiatives for Growth

February 25, 2020
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Author: Jonathan Blair

Ranking No. 16 of 150 markets in ThinkWhy’s LaborIQ™ Index of Top Performing Metros, the Boston-Cambridge-Nashua, Massachusetts metro New England City and Town Area (NECTA) experienced increased job growth and population in December 2019, which is the most recent data available. Though the 2020 Boston NECTA outlook overall is positive, employers will need to address long commutes and difficulty filling positions because of a lack of available housing and tight labor market.

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The Boston employment landscape:

  • Positive job growth
  • Decreasing unemployment
  • Increasing average hourly earnings
  • Increasing population
  • Low movement of renters leaving the area, increasing housing costs

The Boston NECTA labor market is strong, creating a competitive market for job seekers. This underscores the importance of businesses implementing a combination of effective recruiting and growth strategies. Annual job growth increased 1.3 percent for December 2019, with more people entering the labor force. Growth for Education and Health Services (3.0 percent) businesses, along with companies in the Information (3.1 percent), Leisure and Hospitality (2.4 percent) and Professional and Business Services (2.2 percent) industries, come in well above the annual growth rate. However, based on job growth, investments in the Financial Activities, Manufacturing and Trade, Transportation and Utilities industries underperform and even contract; these investments will require adjustments to find stable footing in a tough labor market.

To produce positive economic outcomes, Boston-area businesses can:

  • Evaluate hiring plans to offer competitive packages and closely monitor these expenses in 2020 to quickly pivot away from ineffective programs.
  • Consider the impact of a growing metro on employees and prospective candidates. Ask, “Do my employees want to stay here?”
  • Evaluate productivity and training opportunities. Employees value their time and expect to find development opportunities.
  • Consider ways products or services can be used in faster growing industries.
  • Closely monitor the impact of the coronavirus to Boston businesses and consumers.

Average Hourly Earnings Growth (all private employees, December 2019)

The Boston NECTA finished 2019 with strong average hourly earnings growth. In December, average hourly earnings increased by 3.9 percent from 2018, a nearly three-year high. Average hourly earnings were $36.40 in December 2018 and $37.83 in December 2019. The recent average hourly earnings increase of 3.5 percent occurred in August and November of 2019. With Education and Health Services accounting for 21.5 percent of the job market, August’s growth could be explained by employees in the market returning to school, but strong growth in November and December are encouraging signs for the market and workers.

Unemployment Rate (December 2019)

The unemployment rate in the Boston NECTA continued to decline throughout 2019 and reached 2.1 percent in both November and December. This occurred while employment increased by 34,620 individuals, and the labor force expanded by 28,311 people. This sets the stage for a tight labor market, making it harder and more expensive for companies to find the right talent.

Job Growth by Industry (December 2019)

The Boston NECTA’s annual job growth trend has continued. Annual job growth was at 1.3 percent, which is well above the 2018 annual growth rate of 0.2 percent and slightly above the five-year average of 1.2 percent. The industries listed below are performing ABOVE the Boston metro area’s annual job growth rate. The industries highlighted in green have grown faster in December 2019 than the five-year annual average.

The Education and Health Services sector has the highest percentage share of the job market and falls just short of the top spot in growth. Employment grew more than double the market rate of 3.0 percent for Education and Health Services and 3.1 percent for the Information sector. For investors and business owners seeking growth opportunities in these industries, one may consider merger and acquisition opportunities. This is a tight market. Consequently, labor is in short supply, and growth in industries requiring specific training and skillsets is increasing. There is likely a skills gap within most organizations. Employers need to support growth and utilize the current workforce by finding the right people to train on the right set of skills.

Take, for example, the current coronavirus epidemic, now shuttering markets worldwide, has pivoted the Health Services industry in Boston. Local researchers are focused on halting the spread of this virus, leveraging the expertise of medical professionals at top institutions in the area, to develop a vaccine and predict where the virus may prevail next.

Boston-increased-growth
Source: U.S. Bureau of Labor Statistics

Industries with job growth BELOW the Boston NECTA’s annual rate of 1.3 percent in December 2019 will also find labor to be a barrier to growth and potentially decreasing revenues. Corporations in these industries will need to closely monitor costs, especially payroll-related costs. Payroll accounts for an estimated 70 percent of a business’s total expenses. Decreasing job growth indicates slowing revenues. Stakes in these industries should be evaluated to minimize further losses. If growth plans include further investments in these sectors, revenue growth will be challenging. Thus, employers may want to revise projections for the year.

Boston-decreased-growth
Source: U.S. Bureau of Labor Statistics

Cost of Housing

The Boston NECTA faces a housing shortage. In 2018, the U.S. Census Bureau reported the median home price for the Boston NECTA area to be $430,300. An updated measure from the National Association of Realtors places the median home prices near $482,800 for existing single-family homes in the Boston NECTA division. That was up 4.9 percent in Q4 2019.

According to Apartment List, two-thirds of apartment renters in Boston metro want to stay in the area. Those renters who do move may flock to surrounding areas, such as Hartford, Connecticut; Manchester, New Hampshire and Providence, Rhode Island, as they are affordable alternatives. For those wishing to remain in the Boston area, this possibly indicates further demand and higher living expenses. Companies should seek to understand the movement of their workforce, especially younger employees who have yet to purchase a home. Their desire to seek more affordable options – but continue with their work – may conflict, giving companies an opportunity to retain employees with more flexible working options. The Boston NECTA rents decreased slightly through Q4 2019, according to Apartment List, but rents began 2020 slightly higher than during the same time in 2019.

2020 Boston Metro Outlook

What does this mean for 2020? The Boston metro in 2020 performs slightly below the nationwide expectation for 1.0 percent job growth. The unemployment rate will remain considerably below the nationwide mark of 3.1 percent. This indicates that filling positions will remain a challenge, resulting in slower growth across the market and lower revenues. Therefore, organizations should evaluate their workforce strategy.

Industry performance will contract with the lowest growth occurring in the Information sector, -0.9 percent, and most growth occurring within the Other Services sector at 2.0 percent. The Information sector consists of establishments in the publishing, motion picture, sound recording, broadcasting, telecommunication and data processing and hosting services. The Other Services sector consists of establishments not classified to any other sector, which are primarily engaged in the general service industry. Examples include establishments that repair motor vehicles, machinery and equipment; provide personal care, funeral, laundry, pet and photo services; and organize and promote religious, social and political activities.

Wages will also not see the growth of 2019. This may influence employee decisions in a market with higher-priced housing. Get ahead of these shifts with initiatives led by HR and direct employee conversations. Based on this, even industries currently above the growth rate in December 2019 should take the opportunity to find slack in non-mandatory budget obligations. Can meeting costs be reduced without an impact to productivity? Can businesses boost employee engagement with proactive strategies that meet employees where they are? One or two days working from home may give a well-deserved break from a tough Boston commute and may result in improvement in employee retention. As recent growth rates are not expected in 2020, adjustments will be required.

According to the U.S. Census Bureau, Boston is home to the fifth largest Chinese-American population and a major transportation hub in the U.S. At the time this publication went to press, local businesses within Boston’s Chinatown district had reported that fear of the coronavirus had negatively impacted their business, and the first reported case of the coronavirus in Boston occurred in early February 2020. Local and national healthcare officials are closely monitoring popular gatherings in the Boston area that may pose a health risk. This includes the major gaming conference, PAX East, held Feb. 27 – Mar 1, from which a major participant withdrew, and the Boston Marathon on April 20. The Boston-area community has rallied together to support local businesses by organizing events to promote patronage of businesses impacted.

While it is still too early to forecast the impact to Boston’s economy, businesses should stay tuned to local news sources and CDC analysis for updates. Employers should take the lead on educating their employees on proper preventative care to avoid the spread of any illness. Encourage ill employees to get treatment and take time off work to recover.