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Economists see labor shortage as workers retire

Construction employment, which has rebounded, is predicted to fall.John Tlumacki/GlobeStaff/Globe Staff

Job growth in Massachusetts will accelerate over the next few years before slowing sharply as baby boomers retire in large numbers, leading to possible labor shortages and weaker economic growth, according to a forecast released Wednesday.

The state’s aging workforce provides a particular challenge to the Massachusetts economy, which has prospered because of the large pool of a highly skilled, well-educated workers, according to the analysis by the New England Economic Partnership, a group of regional and academic economists. By 2018, the number of workers retiring in Massachusetts will be about the same as the number of new workers entering the workforce, meaning no increase in the labor force, according to the forecast.

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A growing labor force is a key component for economic growth.

“The vitality of the Massachusetts economy depends on having a large and highly-skilled workforce to attract businesses in the technology, science, and knowledge-based sectors,” the forecasters warned. “Size matters. If the labor force shrinks below a critical level and employers cannot find the talent they want, businesses could move to other regions, starting a downward spiral of investment and jobs.”

The aging workforce in Massachusetts and New England and potential labor shortage have had economists, businesses, and policymakers concerned over the past several years. The demographic trends have led the Greater Chamber of Commerce, Federal Reserve Bank of Boston, and state and local governments to launch initiatives aimed at attracting young workers to the region and keeping them here.

The forecast projects that Massachusetts will add 50,000 to 60,000 jobs a year through 2016, before slowing to about 40,000 in 2017 and plunging to about 14,000 in 2018. The unemployment rate , expected to average about 6 percent this year, will slide to an annual average of 5.2 percent in 2018, according to the forecast.

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By the end of 2018, the state’s economy will look significantly different from the one that preceded the recession in 2008, with more service jobs, fewer manufacturing jobs, and greater income inequality, said Alan Clayton-Matthews, the Northeastern University economics professor who prepared the Massachusetts forecast.

The fastest growing sectors will be education and health services and professional and business services, with employment in each expected to grow 20 percent from 2008. Employment in leisure and hospitality, the sector that includes hotels and restaurants is projected to rise 18 percent from its pre-recession level.

Manufacturing employment in 2018, however, will have declined 12 percent from 2008, according to the forecast.

Rising poverty and income inequality pose major challenges for Massachusetts, according to the forecast. The state is home to a vibrant technology sector, boasting the highest educational attainment levels in the country and earnings per worker that are nearly 20 percent higher than the nation as a whole. But poverty and inequality have been rising, the report said.

“Economic progress should manifest itself in falling poverty, but over the past 10 years, the trend in poverty rates has been up,” Clayton-Matthews wrote in the report. He suggested greater investment in the state’s “human capital” through programs such as early childhood education and workforce development could help close the income gap.

The state’s economy as improved steadily over the past several months. In August, employment in the state was about 54,000 jobs, or 1.6 percent, higher than a year earlier. That rate of job growth was only slightly lower than the national rate of 1.8 percent.

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Earlier this year, the state surpassed the all-time employment peak reached in early 2001, just before the tech bubble of that period burst.

The housing market, however, has recovered more slowly -- even slower than after the real estate bust of the late 1980’s and early ‘90s. During the earlier recession, median prices statewide fell 11 percent and the market took nine years to recover. In the last recession, the state’s median price prices fell 25 percent, and the report predicted it won’t return to pre-recession levels until 2018.


Megan Woolhouse can be reached at megan.woolhouse@globe.com. Follow her on Twitter @megwoolhouse.