The recession that hit the U.S a decade ago may be over, but Minnesota’s economy hasn’t kept up with the rest of the country. That is the message behind a performance report by the Center of the American Experiment. Wednesday, during a Community Partners meeting at the Hideout Bar & Grill in Big Lake Twp., about 50 area stakeholders listened as economist John Phelan used that report to talk about the Minnesota economy. He said Minnesotans often hear about how well the state is doing economically, with things like high home values, low unemployment and good government benefits. But digging deeper into the data shows it’s not all good news.
“Despite what you hear in the media, Minnesota’s economic growth has lagged the national average,” said Phelan. He said although unemployment is low and household median wages are high in Minnesota, it’s not necessarily an indicator of economic growth. Minnesota has a smaller share of households with no workers or one worker and a larger share of homes with two or more workers. “Each household has more workers, so you would expect a higher household income,” he said. “But the high household income is not a result of increased productivity, it’s a result of people working more.”
Phelan said personal income can be divided into three categories: Labor, which is a working wage, capital; such as dividends, and transfer, which is income derived from programs like Social Security. In Minnesota over the past 15 years, labor is just about the national average. Capital income is 10.2% compared to 13.3% in the U.S. But transfer income has grown 69.1% compared the national average of 59.9%. “That’s not a good situation to be in because labor and capital income pay out returns for providing productive service – things that grow the economic pie for goods and services,” he said. “Transfer income doesn’t come from productive activity. That sounds kind of harsh or blunt, but the truth is you cannot have your income growth driven by increases in transfer income long term. Transfer Economy income has to be generated somewhere else first.”
Phelan said the data shows job growth in Minnesota has occurred in lower paying industries, while higher paying jobs have been leaving the state. He presented a graph showing a list of higher productivity, higher paying jobs and how lower productivity jobs are on the increase. In Minnesota, jobs in healthcare and education are on the rise, but are less productive for the economy. “It’s not to say those jobs are not worth doing, but in terms of the overall economic health of the state, you can’t pay for these kinds of jobs if you don’t have people doing these (higher productivity) kinds of jobs,” he said. “You need to generate wealth before you can start spending it.”
Phelan said a big obstacle to economic growth in Minnesota is a high tax burden. The state ranks eight highest in state and local taxes, sixth highest in sales taxes and third highest in corporate taxes. He said combining state taxes with federal taxes, Minnesota is one of the highest-taxed jurisdictions in the Western world. That prevents new businesses from locating here, leading to fewer productive jobs. Phelan said one positive indicator in Minnesota is a well-educated population, which is one of the two most important factors in increased productivity. He said the other is investing in research and development. He said, Minnesota’s policy makers will have to make the state more competitive to assure Minnesota’s future prosperity.
Ken Francis, Staff Writer