Conservatives have blamed “blue-state” policies for what they consider to be lackluster performance by Minnesota’s economy during the 21st century. However, wage growth in Minnesota has been slightly stronger vis-à-vis the national and adjacent state averages under recently enacted progressive policies than under the conservative policies that preceded them.
As noted in the first article of this series, it is generally foolhardy to make a simplistic cause-and-effect connection between a state’s fiscal policies and its economic performance, since the economic fortunes of a state are influenced by many forces—most of which are far more potent than its approach to taxation and government spending. To the extent that conservatives nonetheless seek to attribute Minnesota’s economic performance since the turn of the century to state fiscal policy, they must acknowledge the extent to which policies they support dominated the public agenda over this period.
The following analysis will focus on Minnesota wage growth relative to the national average and adjacent states since 2001, using annual data from the U.S. Bureau of Labor Statistics. (Ideally, this analysis would start in 2000, but online annual BLS wage data for each state only goes back as far as 2001.) Wages are frequently used as a measure of the financial well-being of a nation’s or state’s residents. During this period, Minnesota average annual wage growth was 2.8 percent—very slightly higher than the national average of 2.7 percent.
In addition to comparing Minnesota to the national average, it is also worthwhile to examine wage growth in the four adjacent states (Iowa, North Dakota, South Dakota, and Wisconsin), which have some similarities to Minnesota in terms of climate and location relative to major markets. From 2001 to 2015, average annual wage growth in the adjacent states was 3.0 percent—slightly higher than Minnesota’s 2.8 percent growth rate. North Dakota is an outlier among adjacent states over this period, due to the boom related to Bakken oil production and the more recent bust associated with the decline in energy prices. If we remove North Dakota, the adjacent state average annual wage growth from 2001 to 2015 was 2.8 percent—identical to Minnesota’s.
As noted in part one of this series, Minnesota fiscal policy was largely dominated by conservatives during the first thirteen years of the 21st century, resulting in a significant decline in real per capita state and local government spending both in absolute terms and relative to other states. It is only until relatively recently—specifically, 2013—that progressive policies came to the fore. Over the course of the current century, Minnesota wage growth was modestly below the national average during the period when conservatives dominated state fiscal policy (2001 to 2013) and modestly above the national average during the period when progressive policies prevailed (2013 to 2015).
A similar pattern emerges when we compare Minnesota job growth to the adjacent state average. Minnesota wage growth underperformed the adjacent state average from 2001 to 2013, although the underperformance was slight (less than 0.1 percent) if we exclude North Dakota from the adjacent state average. However, during the brief two year period following passage of progressive legislation in 2013—which included a significant tax increase targeted to high income households, increased investment in education (including all-day kindergarten), and property tax reform and relief—Minnesota slightly outperformed the adjacent state average, both with and without North Dakota.
Two things are apparent from this analysis. First, Minnesota’s economy as measured by wage growth did not underperform the rest of the nation during the entire period from 2001 to 2015; Minnesota’s wage growth was very slightly above the national average during these years and only slightly below the adjacent state average. Second, if we divide the 21st century into periods when conservative fiscal policies prevailed versus periods when progressive policies prevailed, Minnesota wage growth slightly to modestly underperformed that national and adjacent state averages during the era of conservative policies (2001 to 2013) and slightly to modestly outperformed these averages during the brief era of progressive policies (2013 to 2015).
No pretense is made that the progressive legislation is the principal or even a major cause of the small reversal of Minnesota wage growth trends relative to the national and regional averages. After all, many of the investments made in 2013—especially new expenditures in education—will not bear full fruit until some point in the future. Rather, this information is presented merely as a critique of the conservative claim that “blue-state” polices are hurting Minnesota’s economy. The fact that Minnesota wage growth improved relative to the national and regional averages when progressive policies were enacted belies this claim.
The next installment in this series will examine 21st century trends in Minnesota employment growth relative to the rest of the nation and adjacent states.