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Minnesota’s high-tech industry can do much better

A new documentary film on Minnesota’s high tech industry is set to premiere on September 22.  As the Star Tribune’s Lee Schafer explains, “the gist of the movie is that the technology industry here is diverse, vibrant and sits atop a foundation of groundbreaking computer success.”

It appears the main aim of the documentary is to promote Minnesota as a great place to run a high-tech business.  The film was borne from Nick Roseth’s frustration with how, in his view, people inside and outside the region don’t know that Minnesota’s high tech industry is thriving.   Roseth is a technology consulting executive.

Efforts to promote economic development in Minnesota are, of course, always welcome and Roseth deserves much thanks for taking the initiative to collect and share stories about thriving Minnesota businesses.

But is Minnesota’s high-tech industry really thriving?

Roseth’s documentary will no doubt include a number of inspiring stories of businesses achieving success in Minnesota, but these thriving businesses don’t seem to reflect the general health of Minnesota’s high-tech sector.

A broad look at Minnesota’s high-tech sector reveals an industry that experienced a drop in employment between 2000 and 2003 and since then experienced zero growth.   That is one of the more troubling findings from Center of the American Experiment’s new report on Minnesota’s economy by Joe Kennedy, a former Chief Economist for the U.S. Department of Commerce.

The report relies on the U.S. Bureau of Labor Statistics definition of a high-tech job.  The chart below shows high-tech employment dropped to about 100,000 Minnesotans, about 5 percent of total employment by 2003 and has remained at that level ever since.  Zero growth since 2003 certainly doesn’t reflect a thriving industry.

Figure-26

In another area of concern, our report finds Minnesota has a lower percent of employment in new and young firms and a lower rate of new entrepreneurs. As the report notes:

It is reasonable to assume that the decline in high technology jobs is related to Minnesota’s lack of startups and entrepreneurship. It also illustrates the fact that the presence of large, high technology companies headquartered in the state does not necessarily translate into an abundance of high tech jobs in Minnesota.

We’re not the only ones finding warning signs in the economic data.  The Minnesota Department of Employment and Economic Development (DEED) issued an article in their Minnesota Economic Trends magazine on “The Changing Face of Minnesota Manufacturing.

DEED separated the manufacturing sector into declining, lagging, rebounding, and emerging industries based on how employment changed for each detailed industry since both 2000 and 2009.  Declining industries experienced job losses across both periods; lagging industries grew since 2000 but have not regained jobs since 2009; rebounding industries grew since 2009, but are still lower than 2000; and emerging industries grew across both time periods.

DEED highlights how trends in the average weekly wage for these groups “are particularly concerning.”  This concern is revealed in the figure below.  As DEED explains, “Lagging and Declining Industries have the highest wages, so the best-paid jobs in manufacturing are making up a smaller and smaller share of the total.”

Ave weekly wage

Considering high-tech jobs are among the best paid jobs, it’s reasonable to assume many of the declining and lagging industries are high tech, and that’s generally what DEED finds.  According to DEED “Declining Industries comprise a broad mix of manufacturers, including construction products, high tech consumer products and aircraft” and “Lagging Industries include more complex and high-tech manufacturing, including medical device firms.”

As Joe Kennedy concludes in our report, “There is no room for complacency.  Minnesota can do better, but it will require a hard look at how current policies are undermining future growth.”

Last night I read that same message in an old 1985 report by DEED that outlined their economic development agenda.  They highlighted how “we can no longer be complacent about our economic future” and that “policy makers must have clear understanding of the impact of state policies.”

What was true in 1985 is true today and will be true tomorrow.

Minnesota does have a lot to offer businesses, including one of the most educated and tireless work forces in the country.  But we can’t take our eye off how various policies, especially tax and regulatory policies, impact Minnesota’s future.  With the right policies, Minnesota can indeed do better.

If you do watch Roseth’s documentary—and I do look forward to watching it—please don’t let it lull you into complacency.

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