Minnesota job growth lags; tax reform seen as one solution

We commented recently on January’s jobs numbers. Once again, Minnesota’s job growth was to be found mostly in lower productivity sectors of the economy. This is is not good for the economy. Michael Carroll of Watchdog.org looked at some of the responses.

Minnesota added 2,500 jobs in January as unemployment held steady at 3.3 percent, but some observers say the positive numbers mask weaknesses in the state’s economy that policymakers have failed to address.

The state’s Department of Employment and Economic Development (DEED) reported that Minnesota’s jobless numbers continue to be below the national average of 4.1 percent, but job growth in the state is now only half that of the country as a whole – 0.7 percent growth compared to a U.S. average of 1.5 percent.

“Obviously when we start seeing our job growth being so much less than the U.S., we do have concerns over that,” Beth Kadoun, vice president for tax and fiscal policy for the Minnesota Chamber of Commerce, told Watchdog.org.

Minnesota’s job growth in January ranked 35th in the nation, and a lot of the growth was in government jobs rather than the private sector, Kadoun said. The state’s job growth had outpaced the nation in the early 2000s, but since then it has lagged behind the country’s average much of the time.The state has a higher labor participation rate than the nation as a whole and lower unemployment, but domestic out-migration numbers show many workers are leaving the state for other parts of the country, she said. About 3,700 Minnesota workers, most of whom are in their 20s, now leave the state annually, according to the Minnesota State Demographic Center.

“So our population is really growing slower than the other states,” Kadoun said, adding that the number of unemployed in Minnesota is now less than the number of available jobs.

Despite those demographic trends, the outlook for Minnesota’s economy remains good, she said. Growth domestic product growth remains strong, while consumer demand continues to grow and wages are increasing, according to Kadoun. But Minnesota lags behind other states, such as Utah and Colorado, in labor growth, she said.

“That’s what Minnesota needs to focus on,” Kadoun said.

In addition to trying to attract and retain workers, Minnesota needs to re-examine state regulations and tax burdens, she said. Minnesota is currently working on realigning its tax system with the new income tax reforms passed by Congress, so the state now has the opportunity to right-size its tax system and reduce rates for everyone, according to Kadoun.

Minnesota has the third highest corporate tax rate in the nation, so the tax burdens the state now imposes can have a dampening effect on entrepreneurial growth, she said. In addition, streamlining the permitting process would help those businesses that want to expand their operations, Kadoun said.

Shane Delaney, spokesman for DEED, echoed Kadoun’s statements about the state’s labor market, saying that Minnesota is now working to combat a workforce shortage. In that sense, the drop in job growth is somewhat of a natural occurrence in a state with very low unemployment, according to Delaney.

“There are currently more open positions here in Minnesota than there are people looking for work,” he told Watchdog.org. “We’re always looking to attract workers to the state.”

Minnesota is fortunate to have not only a strong economy but a diverse one that reflects the nation as a whole, according to Delaney. The state has a mix of job sectors, including agriculture, food production and manufacturing, and if employment declines in one sector, another sector will usually step up with job gains, he said.

The state works with employers and job-training programs to help get unemployed people the skills they need to take on in-demand jobs, Delaney said.

John Phelan, an economist with the Center for the American Experiment, a Minnesota public policy organization based in Golden Valley, expressed concern about falling job growth in the state.

“Between 2000 and 2016, Minnesota ranked 28th among the 50 states and the District of Columbia in the rate of job creation,” Phelan told Watchdog.org in an email. “Another problem is the type of jobs the state is getting. As I wrote when the latest figures came out, our job growth is concentrated in lower-productivity sectors.”

In a recent blog post, Phelan noted that most of the January job growth was concentrated in educational services, construction and government. But in the financial activities sector, which is characterized by high wages and productivity, the number of jobs actually fell, he said.

“We need high-productivity, high-wage jobs,” Phelan said in the post. “This is key for the state’s economic future.”

He also points out that what is characterized as a worrisome “shortage” of workers has resulted in wages in Minnesota going up.

“We were supposed to be worried about stagnant pay,” Phelan said. “Now we are supposed to be worried about the solution.”

Ways to improve Minnesota’s economic performance include lowering personal tax rates and abolishing the corporate tax, he said, adding that the state should also support the replacement of Enbridge Inc.’s crude oil pipeline in the northern part of the state as well as the PolyMet precious metals mining project.

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