Minnesota needs more productive jobs

Manufacturing in Minnesota had another good month in May.

The Mid-America Business Conditions Index for Minnesota registered 58.4 in May. Any index above 50 signals that factories are expanding their output. Supply managers interviewed for the survey saw a number of positive signals, including new orders, sales, delivery lead times, inventories, and employment. According to Ernie Goss, the report’s author and director of Creighton University’s Economic Forecasting Group, “The overall index over the past several months indicates a healthy regional manufacturing economy, and points to healthy growth for both manufacturing and nonmanufacturing through the third quarter of this year.”

Given recent trends in its labor market, Minnesota needs news like this. In recent years, job growth in our state has been concentrated in the education and health services sectors. In April, for the first time more Minnesotans — 538,800 — were now employed in those sectors than any other.

Productivity and economic growth

But these sectors, while vital to Minnesotans, are marked by low labor productivity. Their primary input is human effort, of the doctor, nurse, or teacher. Notwithstanding some technical or methodical improvements, any great increase in output requires an increase in labor inputs. To treat more patients we need more medical professionals, to educate more children we need more teachers. Contrast this with other sectors, such as car manufacture. There, thanks to new capital inputs, the time it takes a worker at General Motors to produce a vehicle has been slashed by 41 per cent. Workers can now produce 13.7 automobiles a day rather than 8, an increase of 71 per cent. By contrast, a doctor can treat few more patients today than she could 50 years ago.

As more and more of the state’s workforce is employed in these sectors, so that workforce becomes relatively less productive. This ultimately slows economic growth, which is an increase in output, not an increase in work. According to a 2012 report in The Lancet, Bangladesh has the most physically active population in the world. As one write up said, “Bangladeshis are exceptionally active due to the country’s primary industries which require physical labour. Most Bangladeshis earn a living through agriculture, primarily cultivating rice and jute but also maize and vegetables.” They work very hard, but they produce very little output. As a result, despite their physical efforts they remain poor. American farmers, with their capital inputs, work less physically but produce far more.

Again, this is not to say that the work done by education and health professionals is not vital to Minnesota. It is. But we can only afford the health and education services we need if we have the wealth generated by a productive economy. While the news from Minnesota’s factories is welcome, we need this to impact the state’s labor market.

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