Mass. could lose 50,000 jobs if federal dollars dry up

Sending the economy over the fiscal cliff could cost Massachusetts more jobs than have been created in the past year, economists predict.

The state is one of the most vulnerable to the deep budget cuts scheduled to go into effect next week because it receives a disproportionate share of federal defense, research, and development money sent to its many universities, hospitals, and technology firms, economists said.

In addition, the threatened expiration of the Bush era tax cuts will fall more heavily on Massachusetts because of the relatively large number of high-income earners.


MassBenchmarks, the economic journal of the University of Massachusetts, calculated that the automatic budget cuts alone would cost the state more than 50,000 jobs over the next three years. The state has added just under 47,000 jobs over the past year, according to Labor Department statistics.

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Robert A. Nakosteen, a professor of business management at the University of Massachusetts Amherst and an author of the MassBenchmarks report, said the job losses would be felt particularly in the state’s high-tech sector, where high-paying jobs in research and development would disappear. “They’re the very kind of jobs and skill levels a high-tech state ought to be really protecting,” Nakosteen said. “You want to be really careful you don’t erode the high-tech base, that core. People move here because it’s a high tech-mecca.”

The UMass report analyzed job losses from spending cuts and did not take into account the impact of the tax increases due to the expiration of Bush era tax cuts set to go into effect alongside the spending cuts.

Congress agreed to automatic, across-the-board spending cuts a year ago that were meant to be so unthinkable they would drive legislators to reach a new compromise. That “poison pill” does not appear to be working; Congress and the White House remain in stalled negotiations just days before the automatic cuts are scheduled to take effect.

Massachusetts received about $22 billion in federal money in 2010, the equivalent of about 6 percent of the state’s economic output.


The budget cuts go into effect about the same time that income tax cuts first approved under President George W. Bush are scheduled to expire. Northeastern University economist Alan Clayton-Matthews said the planned tax increases will probably lead to even deeper job losses, squeezing consumer spending and hiring.

Massachusetts has the second highest per capita income in the nation, $53,000 in 2011. Only Connecticut’s $58,000 was higher.

Moody’s Analytics, a forecasting firm in West Chester, Pa., predicted that the combination of tax increases and spending cuts would cost Massachusetts 74,000 jobs. “That is a huge job loss,” Clayton-Matthews said.

Another analysis of potential job losses by Stephen Fuller, director of the Center for Regional Analysis at George Mason University, estimated Massachusetts would lose about 60,500 jobs due to cuts in federal spending by September 2013.

About 40 percent, or 24,200, of those jobs would be federal workers, including federal contractors. Like the ­UMass estimate, Fuller’s includes indirect job losses for workers in retail, construction, and other industries.


Expiration of the Bush era tax cuts will also mean smaller paychecks for most Americans and an end to some deductions on 2013 tax returns unless Congress acts.

Fuller said that will probably cause Americans to save and further rein in spending, slowing an already difficult and long economic recovery.

“At some point,” Fuller said of the cutbacks, “everybody feels the chill.”

Megan Woolhouse can
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