If Minnesota’s workers were as productive as the US average, we would each be $3,500 better off

Last week, I wrote about how Minnesota’s workers were less productive than the national average. This gives us a relatively low level of GDP per worker. But we have a relatively high share of workers as a share of the state’s population. This gives us a relatively high level of GDP per capita.

Economically speaking, Minnesota’s relatively high share of workers as a share of it’s population (its Labor Force Participation rate) is a positive for the state. Its relatively low level of output per worker, by contrast, is a negative. What might the benefits be to Minnesotans if we were as productive as workers nationally?

GDP per worker if Minnesota’s workers matched the national average for productivity

Data from the Bureau of Economic Analysis allows us to estimate this.

By dividing the BEA’s estimate of 2016 GDP for each state by the Total employment in that state and nation generally (SA4), we get an estimate of GDP per worker, as shown in Table 1. So, we estimate that, on average, US workers produced $95,298 of GDP in 2016 compared to $90,108 for Minnesota’s workers. So, if Minnesota’s workers were as productive as the national average, that $95,298 – 5.8% above the current level – would be the state’s figure for GDP per worker.

Table 1: GDP, Total employment, and GDP per worker, 2016

Source: Bureau of Economic Analysis

We also see from Table 1, that Minnesota had 3,719,410 workers in 2016. We can multiply the new figure for GDP per worker ($95,298) by this figure for total employment to give us an estimate of Minnesota’s GDP if its workers were as productive as the national average. As shown in Table 2, matching the national average of GDP per worker would bump our state up three places on this measure, from 19th to 16th. Overall, Minnesota’s 2016 GDP would be 5.8% bigger than it actually is.

Table 2: GDP, Total employment, and GDP per worker if Minnesota’s workers matched the national average productivity, 2016

Source: Bureau of Economic Analysis

GDP per capita if Minnesota’s workers matched the national average for productivity

What does all this mean for GDP per capita?

To work this out, we simply divide the new, higher level of GDP by Minnesota’s population. The results are shown in Table 3. GDP per capita would have been 5.8% higher in 2016 if our state’s workers were as productive as the national average. Each Minnesotan, on average, would have been $3,497 better off.

Table 3: GDP Per capita and GDP per capita if Minnesota’s workers matched the national average for productivity

Source: Bureau of Economic Analysis

For rising prosperity, productivity is what matters

I recently quoted the economist Paul Krugman

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.

With an ageing population, productivity is the overriding issue for long term economic growth, as our state’s economist, Laura Kalambokidis, said recently. By matching national levels of productivity, Minnesotans could see real economic benefits. So why don’t we? We discuss this in our new report, The State of Minnesota’s Economy: 2017. It is one of the biggest economic challenges facing Minnesota.

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