Federal Cuts Could Hit Tech Economy Hard
Between January 2011 and January 2012, Massachusetts gained 15,900 private-sector jobs, according to the Executive Office of Labor and Workforce Development. But the year also saw the disappearance of 2,300 public-sector jobs, as governments at all levels pushed to reduce spending.
A recent report by the UMass Donahue Institute’s MassBenchmarks publication argued that if government belt-tightening continues, it won’t be just public-sector workers out on the street.
The report analyzed the likely effect of cuts laid out in the Budget Control Act of 2011, which is set to take effect in 2013. Barring a political agreement to maintain funding, the cuts would reduce federal spending by $1.2 trillion over 10 years, with budget reductions split between defense and nondefense programs.
Nearly 53,000 Jobs At Stake?
The cuts would result in the loss of 52,993 jobs, as compared with projected employment levels if the spending were to be maintained, the report concluded. Reductions in government workers would account for 13,434 — a little more than 25 percent — of the lost jobs, but the rest would come from the private sector.
Robert Nakosteen, professor of economics and statistics at the Isenberg School of Management at the University of Massachusetts Amherst, and one of the report’s authors, doesn’t anticipate the cuts in the federal bill moving forward as planned. But he said it’s important to conceptualize the likely effects of spending reductions as Washington continues to debate the issues of spending and reducing the nation’s debt.
“Everybody is for balancing the budget, but there needs to be a full discussion of what these impacts are going to look like,” he said.
Defense Sector Impact
The most obvious job reductions in the report would come from the defense sector, with many concentrated in the professional and technical services industry. That’s the classification that includes many high-tech research and consulting firms. Under the report’s scenario, that sector would lose 9,882 jobs. Manufacturing, which is also closely intertwined with military technology, would lose 1,965 jobs.
“I think everyone expects that there will be, one way or another, significant declines in defense spending,” said Andre Mayer, senior vice president of communications and research at Associated Industries of Massachusetts.
But both Mayer and Nakosteen said the impact on the state depends on how defense cuts are structured. If the military shifts from high troop numbers and toward new technologies, that could lessen the effects on Massachusetts.
On the other hand, Mayer said, cuts could devastate the state’s military bases, such as Hanscom Air Force Base in Bedford, which has already slowed its activities and probably can’t be scaled down any further.
“Further cuts are going to be highly likely to be 100 percent,” he said.
What About Health Care?
As difficult as it is to predict the effect of defense cuts, it’s even harder to pin down what reductions in health care spending might mean for the state. The report predicts a loss of 6,238 jobs in the health care and social assistance sectors, but that doesn’t account for the ways cuts could affect pharmaceutical companies or medical device makers.
Mayer said there are a number of factors that could affect the state’s health care industry, such as national health care reform, possible cuts to Medicare and Medicaid and efforts to reduce the use of high-tech tests.
“UMass Medical Center is very, very deeply involved not only in patient care but also has an awful lot of research dollars coming in,” Mayer said.
In an industry with so many complicated connections to different parts of the federal budget, Mayer said it’s hard to know what effects any federal moves might have.
Vulnerability To Budget Cuts
Even beyond the areas directly affected by government cuts, industries such as retail trade — which is projected to lose 2,241 jobs — lose out when people in high-tech jobs have less money to spend.
Richard Kennedy, president and CEO of the Worcester Regional Chamber of Commerce, said Massachusetts’ status as a high-tech state means its entire economy is unusually vulnerable to government cuts.
“I think if you go to any state where they’re depending upon significant growth industries like biotechnology … areas like that, which are obviously growth areas for the future,” he said, “you’re going to see some impact to a greater extent.”
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