Minnesota & Wisconsin: Similar Unemployment Rates, Different Outcomes

Good news is worth repeating. Last fall, North Star published an analysis showing that while Minnesota and Wisconsin had similarly low unemployment rates, the two states reached this point via very different paths. Minnesota reached its low unemployment rate with above average job and labor force growth, while Wisconsin had below average job and labor force growth. Since the publication of that article, these trends have continued, with Minnesota’s job and labor force growth further outpacing Wisconsin’s.

At the dawn of the Great Recession in December of 2007, both Minnesota and Wisconsin had a 4.7% unemployment rate.* Minnesota’s unemployment rate increased less rapidly than Wisconsin’s during the recession. From the end of the recession through 2014, the unemployment rate in both states declined at a similar pace. Since 2015, Minnesota’s unemployment rate has declined less rapidly than Wisconsin’s; this is not surprising, since Minnesota reached near full employment sooner than Wisconsin, thus making incremental reductions in the unemployment rate more difficult to achieve. As of August 2018—the most current month for which data is available—Minnesota’s unemployment rate (2.9%) is nearly identical to Wisconsin’s (3.0%). Both rates are currently about one percent below the national rate of 3.9%.


The unemployment rate is equal to the number of unemployed people as a percentage of the entire labor force. In order to be part of the labor force, a person must be working or seeking work. (When a person stops seeking work, that person is no longer counted as unemployed or as a member of the labor force.) Whenever the percentage growth in employment exceeds the percentage growth in the labor force, the unemployment rate falls. Thus, it is possible to have weak employment growth and still have a drop in the unemployment rate—provided that growth in the labor force is even weaker.

This has been the Wisconsin route. From December 2007 to August 2018, employment in Wisconsin has increased by 4.7%—well below the national growth rate of 6.3%. However, Wisconsin’s labor force growth has been even more anemic: 2.9% versus a national rate of 5.1%. The relatively weak job market in the Badger State likely discourages workers from looking for work, thus restricting growth in the labor force and lowering the unemployment rate not through job growth, but through frustration.


Minnesota, meanwhile, has achieved its low unemployment rate with job and labor force growth well above the national average. From December 2007 to August 2018, Minnesota’s employment and labor force increased by 8.8% and 6.7% respectively—both rates significantly above the national average and approximately double the Wisconsin growth rates.


Since the previous North Star article was published last fall (based on October 2017 data), Minnesota’s employment and labor force have increased by 1.6% and 1.1% respectively, compared to 0.8% and 0.6% in Wisconsin.† Over this period, Minnesota has added nearly 1.9 jobs for every 1.0 in Wisconsin. The most recent Quarterly Census of Employment and Wages from the U.S. Bureau of Labor Statistics shows that Minnesota has surpassed Wisconsin in terms of the total number of jobs, despite the fact that Minnesota has over 200,000 fewer people.

To a significant extent, Wisconsin’s low unemployment rate is driven by a weak job market that discourages workers from entering or staying in the labor force. Meanwhile, in Minnesota the low unemployment rate results from strong labor force growth combined with even more robust growth in the number of jobs.

Progressives in Minnesota and conservatives in Wisconsin both point to their low unemployment rates as an indication of the success of their respective fiscal policies. However, a deeper dive into the numbers shows that only Minnesota has anything to crow about.

 

*Unless otherwise noted, the data used in this article is derived the U.S. Bureau of Labor Statistics’ Current Population Survey and Local Area Unemployment Statistics (seasonally adjusted). Data for August 2018 is preliminary.

Minnesota’s robust employment growth is particular impressive in light of its low unemployment rate. A June 2018 North Star article found that states with low unemployment rates typically have lower rates of job growth than states with high unemployment rates “since high unemployment states have larger pools of unemployed workers from which to fuel job growth.”