DFL deficit: ‘Productivity’ matters
Back in 1994, the economist Paul Krugman wrote:
Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.
It matters, then, that, as we noted in our 2021 report “The State of Minnesota’s Economy: 2020: A focus on economic growth,” Minnesota is a below-average productivity state, and that this has gotten worse over time.
Figure 1 shows that, in 2023, Minnesota’s Gross Domestic Product (GDP) per worker stood at $161,815, 9.0% — or $16,019 — below that of the United States generally. Even more concerning, perhaps, is that Figure 2 shows that, from 2018 to 2023, per worker real GDP growth in Minnesota came to 6.4% compared to 7.2% for the United States. If continued over ten years, this differential would see real per worker GDP growth 2.0 percentage points lower for the United States than for Minnesota.
Figure 1: GDP per worker, 2023
Figure 2: Growth in real GDP per worker, 2018-2023
Different jobs produce different amounts of GDP. As Figure 3 shows, in 2023, GDP per worker across the United States in the “Information” industry came to $491,431 compared to $94,648 for “Health care and social assistance.” Yet, over the period 2018 to 2023, Figure 3 also shows that, while employment in the Information sector increased by 6.0% for the United States generally, in Minnesota it fell by 10.8% while, for the Health care and social assistance sector, employment rose for the United States generally by 8.1% and by 10.2% in Minnesota.
Figure 3: GDP per worker, 2023, and employment change, 2018-2023
Some portion of Minnesota’s relatively slow per-worker GDP growth is the result of relatively greater employment growth in sectors with lower levels of GDP per worker.
This is purely a mathematical exercise, and not a very complicated one, merely dividing total GDP in a sector taken from the Bureau of Economic Analysis by the total employment in it taken from the Bureau of Labor Statistics. Yet, when I discussed relative worker productivities at the House Ways and Means Committee (57:18) last week in a discussion of “Baumol’s Cost Disease,” some were offended. Rep. Youakim (DFL) said:
I appreciated that Mr. Phelan talked about the need to be productive in our economy. I take a little offence, because words matter, that the inference was that teachers were less productive, or unproductive… (1:33:52)
There was, quite obviously, no such inference. Indeed, if you watch the video, you will see that I am wiggling my fingers when I say “productive” and “unproductive,” the point being that these are economic terms, not moral ones.
The subject of our presentation to the committee was how Minnesota went from a forecast budget surplus of $18.5 billion to a forecast deficit of $5.1 billion in the space of just two years. Simply put, the DFL increased spending at such a rate that even their $10 billion of tax and fee hikes didn’t cover it. The assembled DFL Representatives didn’t much enjoy having their fiscal failures laid so bare, and adopted numerous strategies to try and distract attention from this problem. Rep. Youakim’s attempt to misrepresent economic facts as a moral judgment was just one such strategy.
One thing that would help Minnesota solve its dire fiscal problem is faster economic growth. One thing that would help this is faster employment growth in industries with higher levels of GDP per worker: those that are, in economic terms, more productive. As Paul Krugman would say, productivity matters.