Report finds looming weakness in Minnesota’s workforce

Center of the American Experiment released new research today that analyzes current trends in Minnesota’s labor market and predicts the future of the state’s workforce for the next two decades. Minnesota’s Workforce to 2050 explains how the state’s above average levels of employment mask below average productivity, why an aging population – exacerbated by declining youth employment – could have an outsized impact on Minnesota’s economy, and what policy makers can do to prevent it.

Minnesota’s high employment is the reason for its above-average per capita incomes.

Economic data show hard work is the source of Minnesota’s high per capita incomes; the state’s workforce participation rate is second in the nation. However, these figures mask a concerning problem: below average labor productivity. Economists agree that increases in productivity are what drive long-term earning power, but Minnesota’s current high labor participation rate is compensating for this in the short-term.

Employment is projected to decline, and aging boomers aren’t the only cause.

If Minnesota’s labor participation rate falls in the coming years, as it’s projected to do, the economy will be vulnerable. While an aging population will certainly contribute to the coming decline in labor participation, a significant working-age portion of the population is already sitting out, particularly Minnesotans aged 16-24. Getting them back in the game will be crucial.

A large body of empirical research has identified several factors that have contributed to employment decline:

  • Expanded trade, especially with China
  • Adoption of industrial robots
  • Increased receipt of disability benefits
  • Higher minimum wages
  • Increased rates of incarceration
  • Burdensome occupational licensing

Policymakers can help shield Minnesotans from economic vulnerability.

In Minnesota’s Workforce to 2050, economist John Phelan prescribes several public policy remedies to help prepare for uncertainty ahead:

  • Maintain low tax rates on capital-intensive manufacturers to encourage business investment.
  • Retrain workers displaced by industrial robots to preserve their workforce participation.
  • Closely monitor eligibility requirements for state benefits to encourage workforce participation for able-bodied adults.
  • Abolish the minimum wage, or at least hold it to the current rate, to increase teen employment.
  • Enact a “Clean Slate” law and repeal the “Ban the Box” law to strike a balance between law and order and economic efficiency.
  • Enact a mutual recognition bill to reduce hurdles for occupational licensing.

Phelan is optimistic the report’s findings, combined with the upcoming Budget and Economic Forecast and Center of the American Experiment’s forthcoming annual economy report, will help point policy makers in the right direction for the upcoming legislative session.

He agrees with Minnesota’s chief economist that policy makers should not spend the state’s projected budget surplus right away. He also agrees with the previous forecast’s findings that a slow-growing labor market is a concern, and aging demographics will play a role, but says his report sheds light on other factors that haven’t been given enough consideration.

“Minnesotans will continue to enjoy a strong economy if state leaders implement smart public policy changes that encourage productive work, especially among young people. If policy makers discourage work and business investment with misguided policies, or ignore the vulnerable aspects of our economy, the aging workforce will continue to be a major concern,” Phelan added.