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Statewide view: Minnesota losing economic ground to other states

Everyone knows the economy of northern Minnesota has been up and down in recent years. But most Minnesotans assume the state’s economy as a whole is doing very well. Unfortunately, a new, comprehensive study of Minnesota’s economy by Joseph Kennedy, the former chief economist for the U.S. Department of Commerce, shows such an assumption is untrue.

John Hinderaker

Kennedy determined that since 2000 Minnesota’s performance has been barely average: We’re 30th among the states in per-person income growth, 34th in disposable (after-tax) income growth and 28th in the rate of job creation.

Those numbers aren’t good, but they aren’t the worst news, either. Minnesota’s per-worker productivity is actually below the national average. Productivity is the driver of wealth. We can’t, long-term, have below-average productivity and above-average incomes.

Minnesota’s per-person income remains a little above the nation’s average but not because our economy is particularly strong. Average wages per job in Minnesota are just that: average. The state does better than the nation as a whole in per-person income because so many Minnesotans work. We have the highest labor force participation rate in the U.S.

The most troubling aspect of Kennedy’s report is the numerous leading indicators pointing to a worse economic future if Minnesota remains on its present course. The quality of jobs in Minnesota is declining. We regained the jobs we lost during the recent recession in terms of numbers; however, the jobs we gained are not necessarily on the same level as the ones we lost.

Minnesota’s recent job gains have been almost entirely in two sectors: education and health care. Everywhere else — mining, durable-goods manufacturing, transportation, information systems, finance, retail trade — has been either stagnant or has declined.

This is important because jobs are not equal in their contribution to the gross domestic product. It takes, on average, six jobs in education or health care to equal the contribution to GDP of one job in mining, for example.

Other trends are also negative. There are fewer Minnesotans working in high-tech jobs (as defined by the Bureau of Labor Statistics) today than there were in 2000. New business startups are down sharply, and the rate of new entrepreneurs in Minnesota is much lower than the nation as a whole.

Minnesota was once a venture-capital hotbed; today, venture capital as a share of earnings in Minnesota is only a fraction of the U.S. average.

Perhaps most concerning is that Americans are voting with their feet — and they are not, on balance, choosing to live in Minnesota. In the 1990s, Minnesota was a magnet. Every year the state attracted, on net, thousands of residents from other states. Since 2001, that trend has been reversed. Now, every year, thousands more people leave Minnesota than move here from other states.

And we are not talking primarily about retirees moving to the Sun Belt: 89 percent of Minnesota’s net population loss consists of households headed by persons aged 35 through 64. In 2014, according to IRS data, Minnesota lost $948 million in household income as a result of this net loss of population to other states, an all-time high.

The problem isn’t just that Minnesotans are moving out. Equally important is that fewer people are moving here. People move for many reasons, but an important one is economic opportunity. Right now, residents of other states are not seeing enough opportunity in Minnesota.

How can Minnesota do better? It is no secret Minnesota is a blue state with high taxes and lots of government regulations. When people leave Minnesota, where do they go? Overwhelmingly, according to the IRS, to lower-tax states. That should provide a clue. Kennedy suggests that lower taxes and less onerous regulations on industries like mining are an obvious place to begin if Minnesota wants to restore its once-vigorous economy.

If we want our children and grandchildren to enjoy prosperity in Minnesota equal to what they can find in other states, there is no time to lose.

John Hinderaker is president of the Center of the American Experiment, a conservative think tank based in Golden Valley. Minn. He wrote this for the News Tribune.