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A more productive Minnesotan workforce can offset a declining share of workers

Over the last few weeks, I’ve gone over our new report, The State of Minnesota’s Economy: 2017, in a bit of detail. Having talked a bit about the state’s economy from the turn of the century to now, what might the future hold for Minnesota’s economy?

Yesterday, I talked about the prospects for the Labor Force Participation (LFP) rate in Minnesota. This is part of our GDP per capita growth sum. As Baby Boomers retire and the rate declines, it is set to be a negative until 2035. This will exert downward pressure on GDP per capita growth.

Productivity is the answer. Again. 

So what’s the solution? Productivity. I’ve written about this quite a bit recently, and I make no apologies for that. Economists from Paul Krugman to Laura Kalambokidis, Minnesota’s state economist, agree.

Remember that GDP per capita = Total GDP/Population. If we have a higher share of that population working to produce GDP, there will be more of that Total GDP to divide among them. There will be higher GDP per capita, in other words. If the share of that population working to produce GDP is set to decline, then we could expect Total GDP to decline also, leading to a fall in GDP per capita.

But this assumes that productivity doesn’t change. Productivity is the amount of output generated by a given input, such as labor. If each labor input (workers) becomes more productive and can generate more GDP, then this will offset the decline in Total and per capita GDP resulting from a lower LFP rate. Indeed, if productivity could rise faster than the LFP rate declines, then we could even see higher per capita GDP.

So what do we do about that? 

There are a couple of things we can do to increase per worker productivity in Minnesota. I’ll look at them in more detail in the coming days, but, briefly put, they are 1) attract and/or retain high productivity workers, and 2) improve the productivity of those workers who are less skilled. The state’s economic future really depends on this.

John Phelan is an economist at Center of the American Experiment. 

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