Minnesota’s economic recovery is lagging behind 41 states
As data from the Minnesota Department of Economic Development (DEED) shows, Minnesota’s employment situation is improving. In May, the unemployment rate reached 4.0 percent, down from 4.1 percent in April. Additionally, the labor force participation rate also rose.
However, compared to other states, Minnesota is lagging in recovering from the COVID-19 induced recession. According to the Back-to-Normal index, Minnesota ranked 42nd in returning to pre-pandemic economic activity levels. Currently, Minnesota is only at 89 percent of its pre-pandemic level of economic activity. Nationally, the economic activity level is 93 percent of what it was before the pandemic.
On the other hand, other states like South Dakota, Florida, Rhode Island, Montana, Idaho, Nebraska, West Virginia, and Florida have reached, and even exceeded, pre-pandemic economic activity levels.
Why the slow recovery
Minnesota had among the most restrictive lockdown policies during the pandemic. So, it is not surprising that the state’s recovery has lagged behind other states. However, in addition to restrictive COVID-19 policies, Minnesota also has high taxes and stringent regulations, which could be preventing investments in the state economy.
Generally, high taxes and stringent regulations deter entrepreneurship, an important aspect of economic recovery. Additionally, restrictive policies may hinder businesses from responding to changing market conditions to make the necessary investments and innovate as they plan for a changing market.
In essence, economic freedom builds economies that can withstand downturns and recover quickly. Policies limiting economic freedom, on the other hand, lead to a less dynamic economy — i.e., one characterized by, among other things, low business creation, low labor market turnover, and low geographic mobility — which translates to a slow recovery in times of economic crisis.
Indeed, there appears to be a correlation between the level of economic freedom and the change in unemployment during the lockdown. As of March 2021, states that rank low (high) on the Economic Freedom of North America Index had unemployment levels that were further (closer ) to their pre-pandemic levels, meaning a slow (quick) recovery in the job market.
