Massachusetts Economy: Brains as an Industry

Massachusetts has one of the larger state economies in the United States, usually ranked in the top fifteen by GDP — the dollar value of everything a place makes and sells in a year. Massachusetts is not big by population, but it punches well above its weight because of an unusually concentrated cluster of universities, hospitals, biotech firms, and financial institutions in the Boston area.

This is a plain-English tour. For the national picture, see The State of the U.S. Economy and the Economy hub.

How big is the Massachusetts economy?

For example, recent state GDP for Massachusetts has run around $700 billion, according to the Bureau of Economic Analysis. Population is roughly 7 million, per the U.S. Census Bureau. The Boston metro area accounts for the majority of the state's population and an even larger share of its economic output.

The biggest industries

Massachusetts is one of the most knowledge-economy-heavy states in the country. The main pillars are:

• Higher education — Harvard, MIT, BU, BC, Northeastern, Tufts, UMass, and dozens of other colleges and universities employ huge numbers of workers and pull in billions in research dollars.
• Healthcare — Boston has one of the densest hospital and academic medical center clusters anywhere, including Mass General Brigham, Beth Israel Lahey, and Boston Children's.
• Biotech and pharmaceuticals — Cambridge has one of the largest biotech clusters on Earth, with Moderna, Biogen, Vertex, and many others either based there or with major operations.
• Finance — Boston is a major asset-management center; Fidelity, State Street, and several large mutual fund families are based there.
• Tech — software, robotics, and AI firms are heavily concentrated around Route 128 and the Seaport District.
• Tourism — Boston's history, Cape Cod, the Berkshires, and the islands drive a significant travel sector.

Jobs and wages

Massachusetts labor data is published by the Massachusetts Executive Office of Labor and Workforce Development, with national-level numbers from the Bureau of Labor Statistics. For example, the Massachusetts unemployment rate has typically run close to or a bit below the national average. The state has one of the most-educated workforces in the country, which feeds into its high average wages.

The Massachusetts minimum wage is well above the federal floor of $7.25 per hour. Tipped workers have a separate, lower minimum.

Taxes in Massachusetts

Massachusetts has a flat state income tax with a higher rate added on income above a high threshold (the so-called "millionaire's tax"). The combined structure makes Massachusetts a relatively high-tax state for very high earners.

The state sales tax rate is 6.25%, with no local additions, so the combined rate is 6.25% statewide. Most clothing under a price threshold and most groceries are exempt.

State tax forms and rules live at the Massachusetts Department of Revenue. You can read more about how sales tax works in our glossary.

Cost of living

Cost of living in Massachusetts runs well above the national average, especially housing in the Boston area. Boston, Cambridge, and Somerville have among the highest rents in the country. Western Massachusetts (Springfield, Pittsfield) and parts of central Massachusetts are far more affordable.

The federal government tracks region-specific Consumer Price Index data through the BLS New England region, and HUD publishes Fair Market Rents for every county at HUD User.

Brains as an industry

The unusual thing about Massachusetts is that its biggest exports are essentially research, education, and ideas. Drug companies invent new molecules in Cambridge. Hospitals develop new treatments. Universities train the workforce that other states then hire. Asset managers and consulting firms build research-heavy businesses on top of that talent pool. That is what people mean when they say Massachusetts has turned brains into an industry.

How does the Massachusetts economy fit into the national picture?

Massachusetts is one of the wealthiest states by median household income, with one of the most-educated workforces in the country. Population growth has been slow but positive, with most growth concentrated in and around Boston. The state's economy is more stable than most in normal recessions because healthcare and higher education employment are relatively recession-resistant.

Western Massachusetts and the rest of the state

The Boston metro is so dominant that the rest of Massachusetts can get overlooked. Worcester, the state's second-largest city, has a strong healthcare and higher-education base of its own. Springfield and the broader Pioneer Valley combine manufacturing, healthcare, and a meaningful college sector around the Five Colleges consortium. The Berkshires anchor a small but well-known cultural and tourism economy. Cape Cod and the islands run on tourism and a large second-home market. Each of these regions has very different cost-of-living and wage profiles than Boston does.

A note on the numbers

Numbers in this article change every quarter — always check the latest from BEA, BLS, and the Massachusetts Department of Revenue for the most current data.