This brief examines the effects of industry performance and industry composition on overall changes in Massachusetts employment in the period 1996 to 2006. Through 2000, Massachusetts enjoyed strong economic expansion. Around the time of the nationwide recession of 2001, however, the Massachusetts economy experienced a relatively severe setback, and the state has yet to regain as many jobs in the ensuing expansion as it lost in the downturn.

The study finds that Massachusetts industries generally experienced slower employment growth than their national counterparts in the early 2000s. The highest-flying industries of the late 1990s did "give back" some of their gains in the early 2000s, but this fact does not explain the Commonwealth's overall employment trends relative to national trends. Other, lower-growth industries in Massachusetts also underperformed relative to their national counterparts in the early 2000s, and this disparity accounts for almost all of the observed difference between Massachusetts and U.S. employment growth rates during the post-boom period.

Cutting the data differently to focus on industries that characterize the "innovation economy" in Massachusetts allows a richer interpretation of the post-boom period. The industries in key clusters identified by the Massachusetts Technology Collaborative had declining U.S. employment in the early 2000s. In addition, these industries had steeper employment losses in Massachusetts than in the nation during this period. Thus, the identity of the state's key industry clusters, as well as the comparatively poor performance of these clusters, helps to account for the weakness of employment trends in Massachusetts compared with national trends since the boom ended.