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State not adding jobs fast enough, report says

Massachusetts’ relatively low unemployment rate masks significant problems for many people who want to find jobs but cannot, according to a report by top local economists.

While the housing market is a bright spot for the state, with sales, prices, and building permits on the rise, other developments are worrisome, the economists said. Massachusetts’ exports to its major international markets slowed significantly in the past year as the global economy weakened, while federal tax increases and budget cuts are further undermining growth.

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All this adds up to an economy that is growing, but not creating jobs fast enough for the tens of thousands of unemployed, underemployed, and discouraged workers, the economists said.

“The state’s growth path has slowed,” said Daniel Hodge, director of economic and public policy research at the University of Massachusetts Donahue Institute, “and is no longer outpacing the US.”

The economists, from the Federal Reserve Bank of Boston, local universities, and State Street Corp., constitute the editorial board of MassBenchmarks, an economic journal published by the Donahue Institute. They made their assessment at the June 21 meeting of the board, reported in a summary released Thursday.

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The unemployment rate in Massachusetts was 6.6 percent in May, but rises to 12.9 percent when it includes those working part-time jobs because they can’t find full-time work, and those who are so discouraged they have given up looking.

The economists also said younger and often less-skilled workers are increasingly unemployed and dropping out of the labor force.

“The extent of their disconnection from the labor market is troublingly high,” the report says. “The state’s labor market continues to be under considerable stress and faces profound challenges that are not fully reflected in the state’s headline unemployment rate.”

Part of the slowdown is due to poor economic conditions in Canada, Europe, and Asia, which have hurt exports from the state. In April, Massachusetts exports fell more than 11 percent from a year earlier, the economists said.

Federal income tax rates rose for upper income households in January, and payroll taxes increased for working Americans, the report said, hitting consumers on both ends of the economic spectrum.

Additionally, billions in federal spending cutbacks, known as sequestration, which took effect when Congress could not reach a budget agreement, have taken a toll in Massachusetts.

Federal funding of medical research and defense spending have slowed in the state, as has federal spending on programs such as Head Start, the preschool education program for children, and Section 8, the housing subsidy program for poor families.

“Sequestration does appear to be having a negative impact,” said Michael Goodman, a professor of public policy at UMass Dartmouth and a member of MassBenchmarks editorial board.

“It’s been a double whammy for Massachusetts, where we’re reliant on research funding . . . and our communities are just as exposed to [the cutbacks in] human and social service programs.”

Megan Woolhouse
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