Boston Economy: Brains as an Industry

See also: Massachusetts economy

The Boston metro area — formally Boston-Cambridge-Newton, which stretches across parts of Massachusetts and New Hampshire — is the largest metro economy in New England and one of the most education- and research-intensive in the country. Boston's economy runs on brains: a dense cluster of universities, hospitals, biotech firms, and money managers that together produce one of the highest per-capita outputs of any U.S. metro.

This is a plain-English tour of how the Boston metro economy works. For the country-level view, see The State of the U.S. Economy and the broader Economy hub and city cluster.

How big is the Boston metro economy?

For example, recent metro GDP for Boston-Cambridge-Newton has run around $560 billion, according to the Bureau of Economic Analysis. Metro population is roughly 4.9 million, per the U.S. Census Bureau. That makes the Boston metro larger by population than 26 of the 50 U.S. states.

The biggest industries

A handful of sectors do most of the work in the Boston metro economy:

• Higher education — Harvard, MIT, Boston University, Northeastern, Tufts, Boston College, and dozens of smaller schools anchor a huge faculty, staff, and student workforce.
• Healthcare and hospitals — Mass General Brigham, Beth Israel Lahey, Boston Children's, and Dana-Farber together employ huge numbers of workers across the metro.
• Biotech and pharmaceuticals — the cluster in Cambridge's Kendall Square is the densest biotech footprint in the world, with Moderna, Biogen, Vertex, Takeda, Pfizer, and dozens of others.
• Finance and investment management — Boston is one of the leading centers for asset management in the U.S., home to Fidelity, State Street, MFS, Wellington, Putnam, and many more.
• Tech and software — a long-running cluster of enterprise software, cybersecurity, and robotics firms anchored by MIT spin-offs.
• Defense and engineering — large operations from Raytheon, MITRE, and Lincoln Laboratory cluster northwest of the city.
• Tourism — historic sites, sports, and a year-round event calendar drive a meaningful travel sector.

Jobs and wages

Metro labor data is published by the Bureau of Labor Statistics New England region. For example, the Boston metro unemployment rate has typically run a tick below the national average, helped by the steadiness of higher education and healthcare hiring.

The City of Boston uses Massachusetts's statewide minimum wage, which is well above the federal floor of $7.25. The latest rates are at the Massachusetts Department of Labor Standards. Many large Boston employers — especially hospitals and universities — pay well above that floor on their own.

Cost of living

Boston is one of the most expensive metros in the country, especially for housing. For example, recent HUD Fair Market Rent for a two-bedroom in the metro has run around $2,800 a month, with the city itself, Cambridge, and the inner suburbs higher and parts of southern New Hampshire lower. Current county-level numbers are at HUD User.

The federal government tracks region-specific inflation data through the BLS New England region. Boston's CPI tends to track close to the national average month to month, but the level of prices is among the highest in the country.

Taxes in Boston

Boston residents pay Massachusetts's flat state income tax, with a small additional surtax on very high incomes. Combined sales tax in Boston is 6.25%, the lowest of any major U.S. metro on this list, because Massachusetts does not allow city or county sales-tax add-ons. Property taxes are moderate by U.S. standards. State rules live at the Massachusetts Department of Revenue, and you can read more about how sales tax works in our glossary.

How the Boston metro fits into the national picture

Boston's economy is unusual because so much of it runs on federal research funding. Hospitals, universities, and the biotech firms that grew up around them depend heavily on grants from the National Institutes of Health, the National Science Foundation, and other federal agencies. When that funding rises, Boston hires aggressively across labs, clinical trials, and the engineering firms that supply them. When it falls or shifts, the metro feels it within a year.

Brains as an industry

Boston's industry mix is unusually weighted toward what economists call knowledge-intensive sectors — fields where the raw input is human expertise rather than commodities, machinery, or land. That mix gives the metro a steadier base than places that depend on energy or manufacturing, but it also means Boston's wages skew unusually high for those with advanced degrees and unusually wide for those without.

A note on the numbers

Numbers in this article change every quarter — always check the latest from BEA, BLS, and HUD User for the most current data on the Boston metro.