Gov.-elect Tim Walz (D-MN) would probably disagree, but the state of Minnesota’s economy “continues to be unimpressive” and presents cause for “concern about the future,” according to the Center of the American Experiment.
Minnesota’s leading think tank released its annual “The State of Minnesota’s Economy” report Tuesday, and found that while the state’s per capita numbers exceed national averages, its per worker numbers present a bleaker picture.
“On GDP per worker, Minnesota ranks 27th in the U.S., 9.3 percent below the national average. On personal income per worker we rank 20th, 6.1 percent below the national average,” economist John Phelan (pictured) explains.
What this means, according to Phelan, is that Minnesota is “able to achieve above average levels of GDP and personal income per capita,” but only because of its “above average labor force participation rate.”
“The picture that emerges is concerning. We find that Minnesota is a hard working but low productivity economy,” Phelan puts it bluntly.
Minnesota’s high tax rates aren’t helping, either, but the problem is only expected to get worse. As Phelan points out, Minnesota’s tax rate on top earners is higher than all but three states, those being California, Hawaii, and Oregon.
“It is not just ‘the rich’ who are taxed heavily; Minnesota’s lowest tax rate is higher than the highest tax rate in 23 states,” Phelan found, and as a result, “the state loses residents in every income category over a modest $25,000 annually.”
“Taking income as a proxy for productivity, Minnesota is suffering a net loss of its more productive workers,” he writes.
Minnesota is also predicted to experience a drop in its labor force participation rate, which is forecasted to fall to 64.6 percent by 2035, according to Phelan. Some Democrats, including Minnesota’s next governor, often point to immigration as a potential solution to this problem, though the Center of the American Experiment notes that this “relies on two assumptions.”
“The first is that the new arrivals will have a labor force participation rate at least as high as that of the population already here. If they do not, they actually will lower the labor force participation rate, exacerbating the very problem they are proposed to solve,” Phelan writes, noting that the second assumption “depends on the new arrivals being at least as productive as the workers already here.”
Phelan suggests that “what matters is the skill level of the workers,” which is lower among Minnesota’s immigrant communities.
“However, whereas 34 percent of native-born Minnesotans have attended some college or earned an associate’s degree, that figure is just 21.6 percent for foreign-born Minnesotans and falls to 15.5 percent for foreign-born non-citizens,” he writes.
Additionally, 45.8 percent of foreign-born Minnesotans have just a “high-school diploma or less,” and 27.1 percent are not high school graduates. For “native-born Minnesotans,” these numbers are 30.8 percent and 4.9 percent, respectively, Phelan points out.
“For foreign-born residents who are not citizens these figures rise to 52.7 percent and 34.4 percent,” he adds.
To conclude his 38-page report, Phelan argues that Minnesota’s “excessive rates of personal taxation” push its “productive workers out,” while its “high rates of business taxation” deter “investment, entrepreneurship, and small business formation.”
“To boost the productivity of Minnesota’s workers so they can generate more output and enjoy the higher standards of living they deserve, these policies need to change,” the report concludes. “Until then, our economic performance will remain unimpressive.”
You can read the Center of the American Experiment’s full report here.
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