Reducing the rates of teenage and black unemployment can help tackle Minnesota’s supposed labor shortage

Despite last month’s uptick, Minnesota’s unemployment rate remains close to a record low. This ‘tightness’ in the state’s labor market has had employers lobbying for more immigrants to take the jobs they have going.

This may, or may not, help. In terms of growing Minnesota’s per capita GDP, it all depends on the productivity of those immigrants relative to the productivity of the workers we already have. If they are less productive, they will increase the capita more than GDP. If they are more productive, they will increase GDP more than the capita. From an economic perspective, it is their productivity that matters.

There are still Minnesotan workers available 

But the headline unemployment figure of 3.8% doesn’t tell you the full story. There are some sections of the community where the unemployment level is significantly above this.

DEED tracks a number of Alternative Measures of Unemployment. Among women the unemployment rate is 3.1%, below the state’s average. The male rate, 4.4%, is above it. But the rate of teenage unemployment stands at 12.6%. It has been on a general upward trend since early 2016, accelerating in late 2016. The August 2017 rate was the highest since September 2014.

What could be behind this? DEED writes that

This recent increase in teen unemployment coincides with an increase in the state minimum wage to $9.50 per hour ($7.75 for those under 18) in August 2016, which is notable because minimum wage rules tend to apply disproportionately to teen workers. The minimum wage increase may have contributed to higher teen unemployment both by making employers more reluctant to hire, and by increasing the labor force participation of teens who know they can now make higher wages if they work. In fact, teen labor force participation increased significantly during this period, while the number of employed teenagers has only moved slightly up and down with no clear trend. 

This is a further indication of just how badly young, low skilled workers will be hurt by Minneapolis’ $15 minimum wage.

There is more labor market ‘slack’ to be identified if we look at unemployment by race or ethnicity.

Among whites, the unemployment rate is 3.1%, and among Hispanics it is 5.4%. But among blacks, the unemployment rate is 8.9%. Worryingly, while white and Hispanic unemployment rates nudged up by 0.2 percentage points between August 2016 and August 2017, among blacks it rose by 0.9 percentage points, more than four times as fast.

Minnesota needs to use what its got

There are strong economic arguments for mobilizing these underutilized workers.

The calculation of GDP per capita is simply total GDP/population. If we have more of that population working then we can increase GDP without adding to the capita. Increasing the Labor Force Participation Rate like this is one of the three sources of per capita GDP growth.

But there are also important social reasons.

According to a recent study, the median household income for black families in Minnesota was $30,306. For whites, it’s $66,979. If we want to close this gap and raise the incomes of black families, we can make a start by mobilizing the unemployed workers already here, our fellow Minnesotans, to help fill the labor shortage.

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