New Report: Minnesota’s Economy Continues to Lag in Key Areas

American Experiment economist John Phelan

The State of Minnesota’s Economy: 2018 report analyzes the key metrics that have driven Minnesota’s economy over time since 2000, identifying strengths, weaknesses and recommendations for the consideration of policymakers and the public.

On the positive side, Minnesotans’ median household income of $70,218 ranks 15th among states, nearly 19 percent over the national average. But a closer look at the data reveals Minnesota achieves that level of household income because a greater percentage of residents are in the workforce (68.8%) than in all but one other state.

In fact, Minnesotans have fallen behind the national average on a number of productivity measures such as output per worker and output per hour worked. For all their hard work, Minnesotans generate less income than workers in other states with more investment and entrepreneurship behind their workforce.

“Minnesota’s high tax policies are deterring investment and entrepreneurialism in the state. This is depriving the state’s workers of the tools they need to increase their productivity and leverage their hard work into higher incomes,” said John Phelan, American Experiment economist and author of the report.

The state’s productivity problem has more than theoretical implications. The state would generate an additional $5,800 per Minnesotan (9.2%) each year if its per capita productivity simply matched the national average, according to the findings.

The report identifies several options for boosting workforce productivity, starting with attracting and retaining more skilled workers. But Minnesota’s fourth highest top income tax bracket undermines that policy goal, making the state less attractive to both high and middle-income wage earners. Minnesota loses more residents than it gains from other states in every income category over $25,000. At the same time, Minnesota faces demographic challenges that come with an aging population and workforce.

“This report provides an important and timely analysis of Minnesota’s economy to help policymakers make informed decisions on changes that will best position Minnesota for a strong and growing economic future,” said Beth Kadoun, Vice President of Tax and Fiscal Policy for the Minnesota Chamber of Commerce. “This reflects what we hear from our business community, which is the need to improve our tax competitiveness.”

In addition, the state’s third-highest corporate income tax rate helps explain why another tool for improving labor productivity in Minnesota— capital investment–trails behind the national average by nearly four percent. Another key indicator, venture capital investment for new and start-up Minnesota businesses, falls short of the national average on a per worker basis by 63 percent.

The report challenges lawmakers to address policies that hinder investment, entrepreneurship and small business formation so critical to the state’s economic well-being. The complete report can be downloaded here.