Q&A: “Garage Logic”
Podcaster Joe Soucheray takes the Center’s John Hinderaker on a tour of Gumption County.
This weekend sees both my wedding anniversary (five years) and birthday celebrations (I’m 21 again). But celebrations are postponed because, so my family tell me, there is a much bigger event: the Vikings vs the Packers on Sunday.
Since moving to Minnesota, I’ve learned that this rivalry isn’t just confined to sports. People here love to compare the performance of the Land of 10,000 Lakes – whether economic, sporting, or whatever – to that of America’s Dairyland across the St. Croix. Our state certainly has a cooler nickname.
This isn’t totally crazy. In New State Ice Co. v. Liebmann, a 1932 Supreme Court decision, Justice Louis Brandeis famously said that a “state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” If two states pursue different policy approaches, they can provide something close to the ‘natural experiments’ that social sciences, such as economics, use in place of lab experiments.
But we should be careful not to push these comparisons too far. Even neighbors like Minnesota and Wisconsin, with many similarities, also have different characteristics not driven by economic policy which affect economic outcomes. For example, while both states share a climate, Wisconsin has been hit harder by the manufacturing decline than Minnesota and lacks a dominant urban center like the Twin Cities.
But we can exclude a lot of these differences by looking at counties along the state’s borders. Factors such as geography, climate, or demographics can be assumed to be uniform between, say, Washington County in Minnesota and St. Croix County on the other end of the I-94 bridge in Wisconsin. What differences in economic outcomes we do see in each county can be attributed with more certainty to differences in tax and regulatory systems in the two states.
Since 2000, the Wisconsin counties bordering Minnesota have been more prosperous than their Minnesota neighbors. As Figure 1 shows, personal income per capita increased by 3.25% in annually in Wisconsin compared to 3.02% in Minnesota. This may seem trivial, but compounding numbers adds up to large differences over time. If the Minnesota counties had grown at the rate as Wisconsin’s, their per capita personal income would be $1,798 higher.
Figure 1: Personal Income per Capita growth in Minnesota/Wisconsin border counties, 2000-2016, 2000=100
Source: Bureau of Economic Analysis
We see a similar story with wage growth since 2000, as Figure 2 shows. In Wisconsin’s border counties, there was annual growth of 2.51% compared to 2.41% in the Minnesota counties.
Figure 2: Wage growth in Minnesota/Wisconsin border counties, 2001-2016, 2001=100
Source: Bureau of Labor Statistics
Unemployment rates at the border offer another useful comparison. As Figure 3 shows, in July 2014, Wisconsin’s border counties had an average unemployment rate of 5.6% compared to 5.0% in Minnesota. Then, in August 2014, Minnesota’s government enacted a series of minimum wage hikes. By January 2018, and the Wisconsin counties unemployment rate had fallen to 3.5% compared to 3.9% in the Minnesota counties. In other words, the decrease was nearly twice as large across the St. Croix.
Figure 3: Unemployment rates in Minnesota/Wisconsin border counties, 2011-2018
Source: Bureau of Labor Statistics
In the economic border battle, Minnesota is getting edged by Wisconsin. We need to heed this lesson and enact policies from a pro-growth playbook. And we want to see the Vikings do better in their border battle at Lambeau Field this Sunday.
John Phelan is an economist at the Center of the American Experiment.