Are Bay State Businesses Backsliding?

Massachusetts businesses could be in trouble according to the latest Business Employment Dynamics data from the U.S. Bureau of Labor Statistics.

As a recent Pioneer Institute study found, historically Massachusetts has seen lower business formation than other states. But this new data suggests it’s not just new business that’s lagging in the Commonwealth. Existing businesses are also struggling to stay afloat. 

More Businesses Are Shrinking Than Growing in the Commonwealth

In the third quarter of 2025, Massachusetts had roughly 4,600 more business contractions than expansions. This is just the latest in a longer historical trend – over the last two years, Massachusetts has seen more businesses downsizing than almost every quarter. 

While across the country other states are also experiencing headwinds for business, Massachusetts’ ratio of job losses to gains is significantly larger than the national average. 

This news is concerning for Massachusetts, because data shows the fluctuation in jobs associated with these expansions and contractions is outpacing any job creation created by new business growth. Existing businesses that downsized triggered a net loss of more than 20,000 jobs across the state. 

Shrinking Businesses Are a Red Flag For Our Economic Competitiveness

When more establishments contract than expand, it suggests existing businesses are under pressure. Instead of adding workers or scaling operations, many firms are pulling back, a shift that tends to show up in job losses and slower economic momentum.

That trend is playing out across several key industries. Leisure/hospitality and retail saw the largest net job losses, while other key industries lost jobs too: construction lost nearly 3,000 jobs on net this quarter, financial activities businesses lost a net -2,500 positions, and manufacturing lost a net -1,747 jobs.

Education, health services, transportation, and warehousing provided a few areas of growth, but those gains were not nearly enough to offset broader losses across the economy. The fact that declines are spread across multiple sectors suggests this is not an isolated issue, but a more widespread cooling.

All of this comes as Massachusetts continues to see companies announce layoffs or seek investment in other states. This mounting trend could be due to various economic factors – including a national downturn in business growth, but the state’s environment to attract businesses and workforce talent, and keep them in operation here, is lacking compared to competitor states.

Last year, CNBC ranked Massachusetts as one of the 10 worst states for the cost of doing business and business friendliness in the country, citing the state’s unfriendly tax and regulatory environment, high relative operating costs, and high cost of living for employees.

Conclusion

Despite a nationwide trend of net job losses, Massachusetts is experiencing particularly acute losses. Especially in bad economic times, it’s even more critical that the state boosts opportunities for business growth and job creation. Tax relief is one way policymakers can address this issue. In our recent polling, nearly three-quarters of small businesses said an income tax cut would increase their ability to hire new employees.

It’s important to find ways to incentivise new shops to open their doors in the Commonwealth. But the data tells us the state can do more to support the businesses that are currently here, and ultimately help new businesses thrive long-term.