The State of Minnesota’s Economy: 2020
Today, we release our new report, ‘The State of Minnesota’s Economy: 2020.’ Its key findings are:
- Minnesota typically scores well on levels of per capita income, which is what matters for
economic welfare. In terms of per capita GDP, Minnesota ranks 15th out of the 50 states and the District of Columbia. Our state’s per capita GDP – $68,050 in 2019 – is 4.2 percent higher than the figure for the United States, $65,298.
- Our state does less well when it comes to growth rate. Since 2000, per capita GDP in Minnesota has grown by 20.6 percent in real, inflation adjusted terms. This ranks us 22nd among the 50 states and the District of Columbia and is below the United States’ growth rate over the same period, 25.0 percent. This cannot be explained by ‘convergence.’
- The story is the same with Personal Income: an above average level but a below average growth rate. Furthermore, per capita wage and capital income growth in Minnesota ranked 29th and 39.5 percent of the increase in per capita Personal Income came from increased transfers, above the United States’ share of 34.6 percent.
- It is a similar story when we look at Minnesota’s Metropolitan Statistical Areas (MSAs). Between 2001 and 2019, GDP grew in the metropolitan portion of the U.S. by 42.5 percent, a rate which two of our MSAs beat — Mankato and Rochester — but which the other three lagged — Minneapolis-St. Paul, St. Cloud and Duluth. Compared to its peers across the United States, GDP in the Minneapolis-St. Paul MSA grew by 37.4 percent between 2001 and 2019, compared to 56.7 percent for its peers. Of those peers, the Twin Cities only outperformed St. Louis and Detroit.
- Per capita economic growth comes from three sources: an increase in the amount of labor provided by a given population (a higher employment rate/ratio or hours worked); growth
of capital per worker (the tools those workers have to work with); and Total Factor Productivity (TFP), also known as Technology, which is the way inputs to the production process are transformed into output.
- There is little scope for Minnesota to generate much per capita income growth from increased labor inputs. At 67.8 percent, we already have the third highest employment rate in the United States. Among younger workers and black workers, however, employment is lower than in 2000.
- We need to make these workers more productive and here there is room for improvement. Minnesota’s GDP per worker ranked 21st in 2019 and we rank 18th on GDP per hour worked. On both measures, again, our growth has lagged behind the national rate since 2000.
- The amount of capital each Minnesotan worker has to use, which leverages labor, is about the same as the United States’ median average, so there is scope for improvement here.
- Minnesota can also boost per capita income growth by investing in human capital. In terms of education, we score well on measures such as National Assessment of Educational Progress (NAEP) scores, where we rank 4th. But if we control for socioeconomic factors, we fall to 33rd. Our state’s ethnic minority students are also particularly badly served.
- We could also increase human capital by attracting and/or retaining highly skilled workers. However, using income as a proxy for productivity, we see that Minnesota has, on net, been losing more highly skilled workers: Between 2011 and 2018, Minnesota saw a net outflow of people above an income threshold of $50,000 annually.
- On one of the components of TFP, innovation, Minnesota scores well, ranking 6th in 2019 for patents per million of the population. But other states do a better job of implementing these.
- But on entrepreneurship we do less well. In 2020, new businesses accounted for 31.3 percent of businesses in Minnesota compared to 37.7 percent for the United States, ranking us 38th.
John Phelan and Martha Njolomole are economists at the Center of the American Experiment.