Many Minnesotans believe their state’s economy is unusually strong and prosperous, and should be a model for other states. In fact, Minnesota does have a number of important advantages, including a healthy and well-educated population, cultural values that lead to high labor-force participation and a diverse array of natural resources.
Unfortunately, however, the reality is that despite these advantages, the state’s economic performance has been mediocre in recent years.
This is the conclusion of a groundbreaking paper by Joseph Kennedy, former chief economist for the U.S. Department of Commerce, which Center of the American Experiment is releasing on Monday. Kennedy’s research indicates that over the last 15 years, Minnesota has been average with regard to economic growth; below average with respect to private-sector productivity; 30th among the states in per-capita income growth, and 28th in the rate of job creation.
Similarly, the Twin Cities metropolitan area ranks average or below average among the nation’s 15 major metropolitan areas in rates of economic growth and job creation.
But that isn’t the worst news. Kennedy also finds that, with respect to an alarming number of leading indicators, Minnesota’s current performance points toward below-average prosperity in the future.
Minnesota is experiencing a growing concentration of employment in industries and occupations that produce less economic output per job. Consistent with that trend, there are fewer Minnesotans working in high-tech jobs today than there were 15 years ago, according to the Bureau of Labor Statistics.
Minnesota also is suffering from a decline in venture capital, a falling rate of new company formation and a decline in entrepreneurship.
Perhaps most worrying is the fact that every year, thousands of households — on net — leave Minnesota for other states, overwhelmingly for lower-tax states. In 2014, the most recent year for which Internal Revenue Service data are available, those households took with them — again on a net basis, subtracting those who arrived from those who left — $980 million in income. The Census Bureau’s latest migration data, issued in March, indicates that the exodus from Minnesota accelerated in 2015.
This migration problem has two dimensions. The first and more highly publicized aspect is that residents leave Minnesota for other states. The second aspect is equally important but less widely recognized: Minnesota is not viewed as a desirable destination by Americans who live in other states, and they are not moving here in numbers sufficient to replace those who move away.
Kennedy’s conclusion — that Minnesota is entering an era of below-average economic performance — will surprise some Minnesotans, but it shouldn’t. Most people don’t know it, but Minnesota’s own agencies are officially predicting below-average growth for the state. Minnesota Management and Budget projects that in every year from now through 2019, both Minnesota’s per-capita income growth and its job growth will be below the U.S. average.
Similarly, the Minnesota Department of Employment and Economic Development (DEED) has made 10-year projections of job growth in 22 major occupations. In 19 of those 22 occupations, including some where the state historically has been strong, DEED predicts that Minnesota’s job growth will be below average over the next decade.
Minnesotans are justly proud of their state’s quality of life, but in recent years, that quality of life has not translated into outstanding economic performance. On the contrary, over the last 15 years, Minnesota’s economy has been mediocre. More alarming is the fact that unless changes are made, Minnesota is transitioning from an average present to a below-average future.
When it comes to the state’s economy, Minnesota can do better. In fact, Minnesota must do better, if we are to preserve the same opportunities for our children that have been enjoyed by past generations of Minnesotans.
John Hinderaker is the president of the Center of the American Experiment (www.americanexperiment.org).