Fiscal Policy Doesn’t Explain Below Average Employment Growth

Minnesota has lagged modestly behind the national average in terms of employment growth during the 21st century. However, there is no reason to blame Minnesota’s sub-par employment growth upon progressive fiscal policy. Rather, the state’s below average job growth is explicable—and even defensible—in terms of other labor force realities in the state versus the rest of the nation.

This is the third installment in a series that examines the conservative critique that Minnesota’s economic performance thus far during the 21st century has been lackluster due to “blue state” (i.e., progressive) policies. The first installment examined the logical flaws in this assertion, not least of which is the fact that conservative policies have dominated Minnesota’s fiscal agenda for the first thirteen years of the century. It therefore makes no sense to blame Minnesota’s allegedly sub-par performance on progressive policies. The second article examined trends in Minnesota wage growth, finding that wage growth has been slightly below the national average during the thirteen years of conservative fiscal policy and slightly above the national average during the more recent (and far shorter) period of progressive policy.

This article will focus on trends in job growth using seasonally adjusted monthly employment numbers from the Current Population Survey compiled by the U.S. Bureau of Labor Statistics. From January 2000 to May 2016, total U.S. employment increased at an annual average rate of 0.6 percent, compared to 0.5 percent in Minnesota. On the other hand, Minnesota’s employment growth over this period outpaced that of adjacent states (Iowa, North Dakota, South Dakota, and Wisconsin), which increased at an annual average rate of only 0.4 percent. Excluding North Dakota, adjacent state employment increased at an annual average rate of 0.3 percent. (The reason for excluding North Dakota from the adjacent state average was discussed in part two of this series.)

Minnesota’s underperformance relative to the national average is not readily explicable in terms of the predominance of conservative or progressive fiscal policy. From January 2000 to May 2013—a period when conservative fiscal policies generally held sway in Minnesota*—Minnesota’s average annual employment growth (0.3 percent) was below the national average (0.4 percent). This period encompassed the Great Recession, so employment growth in all parts of the nation, including Minnesota, was understandably deflated. While the rate of employment growth improved since the passage of progressive legislation in May 2013, Minnesota’s average annual rate of employment growth (1.4 percent) continued to underperform the national average (1.6 percent).

employ

Just as Minnesota underperformed the rest of the nation in terms of job growth under both conservative and progressive fiscal policy, Minnesota outperformed adjacent states (both with and without North Dakota) during both periods. In short, trends in Minnesota employment growth cannot be neatly explained in terms reference to “red state” or “blue state” fiscal policies.

This discussion would not be complete without some consideration of Minnesota’s below average rate of employment growth relative to the rest of the nation during the 21st century. For much of the last five decades, Minnesota’s economy has generally outperformed national averages. In light of the lower rate of employment growth, is Minnesota in danger of becoming an economic laggard relative to other states?

In general, this conclusion is not warranted. In order for the number of jobs in a state to increase, there must be workers available to take these jobs. Among northern states, the rate of population growth and labor force growth has generally been below the national average. A lower rate of growth in population and labor force translates into fewer workers who are available to fuel employment growth. While Minnesota underperforms the national average in population, labor force, and employment growth since 2000, it surpasses the average among other northern tier states† and adjacent states in all three categories—a good indication that job growth in Minnesota is not low after taking into account the state’s northern latitude.

In addition, Minnesota’s unemployment rate has been consistently below the national average throughout the 21st century, while Minnesota labor participation rate—that is, the number of people employed or actively seeking work as a percentage of the total non-institutionalized civilian population—has been consistently above the national average. In fact, over the last seven months, Minnesota has had the highest labor participation rate in the nation. Thus, to some extent, Minnesota may be the victim of its own success. By providing jobs for a much larger percentage of the state’s population relative to other states, Minnesota’s pool of available workers from which to fuel future job growth is more limited. Viewed in this light, Minnesota’s modestly lower rate of employment growth relative to the U.S. average is not indicative of economic stagnation.

Whatever the cause of Minnesota’s below average rate of employment growth since 2000, it cannot be plausibly attributed to “blue state” policies, since the same trend persisted over the period when conservatives controlled state fiscal policy. The next installment in this series will examine Minnesota GDP growth relative to the rest of the nation and adjacent states during the 21st century.

 

 

*The first article in this series makes the case that Minnesota fiscal policy during the 21st century can be divided into two periods: (1) the period from 2000 to May 2013, when conservative policies dominated the state’s fiscal agenda, and (2) the period since May 2013, when progressive policies prevailed.

 ”Northern tier states” are defined here as states that border Canada or a Great Lake that borders Canada.