If immigration is going to boost per capita incomes, Minnesota needs skilled workers

On Monday and Tuesday this week, I wrote about how the number of people employed in Minnesota has been falling since June. This is bad news. As I noted in our most recent report on Minnesota’s economy, having an increased share of given population in employment is one way to increase per capita incomes and it is per capita incomes that matter for economic welfare.

Our aim, then, should be to increase the share of Minnesotans employed. We must not confuse this with increasing the number of people employed in Minnesota. That was a mistake Neel Kashkari, president and CEO of the Federal Reserve Bank of Minneapolis, appeared to make at a recent Minnesota Chamber of Commerce luncheon discussion.

Twin Cities Business reports:

If Minnesota wants to remain competitive regionally and nationally, we’re going to need more people to move here.

Citing a slew of changes brought on by Covid-19, Kashkari noted that Minnesota’s workforce has significantly contracted over the last few years. He pointed to a wave of retirements accelerated by the pandemic, alongside continued child care constraints keeping more workers on the sidelines. Covid-19 also has claimed the lives of more than 1 million Americans. It’s a “human tragedy,” of course, but also a permanent loss of workers, Kashkari said.

“As I travel in our region, the no. 1 issue I see in businesses large and small is the difficulty in finding workers,” Kashkari said in a Nov. 17 question-and-answer session with Minnesota Chamber president and CEO Doug Loon at the Renaissance Hotel in Minneapolis. “That’s consistent everywhere I go.”

Kashkari’s answer to the region’s workforce problems? In part, immigration.

“Immigration has been a vital source of workers in our economy, both low-skill workers and high-skill workers,” Kashkari said. “That has really dried up in the pandemic, and we’ve got to address that if we really want our economy to be competitive going forward.”

Remember, for economic welfare, it is per capita income that matters, or total Gross Domestic Product (GDP) divided by the population. Increasing the population, as immigration does, may well increase the numerator in that equation — GDP — but it also increases the denominator — population — so that the result – GDP per capita – might be either higher, lower, or just the same.

Which of these it will be depends on two things, as I’ve written before:

The first is that the new arrivals will have [an employment] rate at least as high as that of the population already here. If they do not, they actually will lower the [employment] rate, exacerbating the very problem they are proposed to solve…

The second assumption depends on the new arrivals being at least as productive as the workers already here. Remember, the key measure of economic well-being is GDP per person, and immigrant workers add to the denominator (population) as well as the numerator (GDP). If these workers increase the population by a greater percentage than they increase GDP, they will lower GDP per head.

What matters here is the skill level of the workers…

In short, while highly skilled workers moving to Minnesota can be expected to increase per capita GDP, the same is not necessarily true of lower-skilled workers or immigrants who do not work.

The report continues:

Minnesota could also benefit from residents in other states moving here.

“Minnesota could be a great place for people who say, ‘You know what, I don’t want to live in New York City anymore. I don’t want to live in California anymore. It’s too expensive,’” Kasharki said. He touted the Upper Midwest’s lower cost of living and quality of schooling.

“This is potentially a competitive tool to enhance net migration into Minnesota and into this region,” said Kashkari…

We at the Center have written more than most about Minnesota’s chronic net domestic out-migration to other states, but here Kashkari puts the cart before the horse. If this state was as attractive as he says it wouldn’t be losing residents every year. A reversal of these patterns will likely be a consequence of a better economic environment in Minnesota, but they will not necessarily be a cause of it.