State of the Recovery
Contributors to this article include Jerry Brown, Oriane Casale, Amy Gehring, Amanda Rohrer, Dave Senf, Rachel Vilsack, and Steve Hine.
June 2012
PDF of article
Minnesota is on a slow but steady path to recovery, but the state has a long way to go before the economy returns to its pre-recessionary levels. This analysis by DEED’s Labor Market Information Office examined several measures to determine how the state economy has fared since the recession officially ended in June 2009.
Three years after the official recovery from the worst recession in 70 years, Minnesota and the country are still far from regaining their pre-recessionary employment levels. Based on May’s preliminary numbers, Minnesota has recovered slightly more than half the jobs lost during the recession, and the average monthly rate of growth during the recovery has been about one-third the average rate of job loss during the recession.
Similarly, the recession increased the number of unemployed Minnesotans by about 137,000, but the recovery has only reduced that number by 85,000. After reaching a high of 8.5 percent during the recession, the state unemployment rate fell to 5.6 percent in May, which was still higher than the jobless rate in either of the two previous recessions[1]
On the other hand, there are economic indicators that suggest we have regained our pre-recession vitality. Job openings are close to the levels we saw between 2003 and 2007, while claims filed for unemployment benefits — a good indicator of the pace of layoffs — are back to levels seen before the recession. Private sector performance has been stronger than the data on total employment because government jobs have been in significant decline. Even construction and manufacturing, two sectors of the economy most devastated by the recession, are showing undeniable signs of strength.
This issue of Trends analyzes various measures to help paint a clearer picture of the economy. As suggested above, no single indicator defines the state of the recovery. Taken as a whole, these measures offer a mixed reading, and there are many other indicators not discussed here that offer arguments on either side of the debate about the health of the economy. But a careful reading of this article will provide a better understanding of where we’re doing well, as well as where we still fall short. The article also looks ahead to the end of the decade, based on newly released employment projections.
Jobs, Wages, and Hours
Non-agricultural payroll employment in Minnesota has been expanding for the past 25 months after losing jobs over the 24-month period before that. After peaking at 2.78 million jobs in February 2008, employment fell and did not begin to rise until February 2010, at which point employment had declined by 154,300, or 5.5 percent. This decline erased all of the growth experienced during the inter-recession expansion, with employment falling to levels similar to 1999 (see Figure 1).
As Figure 1 shows, employment changes in Minnesota have tracked closely with the U.S., with peaks and troughs occurring at essentially the same time and with similar rates of change. The employment decline for the U.S., however, was somewhat more severe than for Minnesota, posting a loss of 6.4 percent peak to trough.
Minnesota has been in the recovery phase of the cycle for more than two years. Since hitting a trough in February 2010, employment has expanded fairly consistently, if slowly. The state had regained 78,800 jobs as of March 2012, about half of the total jobs lost during the recession. In 2011, employment grew by an average of 2,575 jobs per month. If that pace of job growth continues, Minnesota will regain its pre-recession employment peak in May 2014.
Figure 2 compares the Great Recession, which began in December 2007, to recessions dating back to 1973 by presenting change in employment indexed to peak employment[2] The 2007 recession stands apart from previous recessions in that it has all the worst features of the previous recessions wrapped into one package. First, the decline in employment lasted longer than in previous recessions. Second, the employment decline was more severe than in previous recessions, with only the 1981 recession showing similar severity. Third, employment recovery has been extremely slow compared with previous recessions.
Contributing to the weak recovery is the fact that the recession was triggered largely by the collapse of a real estate bubble. In the past, construction has spurred rapid growth after a recession because of pent-up demand for housing and improved interest rates. In the current downturn, the housing market is in such poor condition that it is not providing the burst of growth that could help spur broader growth in the economy. There are so many available properties at such low prices — partly because of foreclosures — that new home prices are less competitive and hence construction of housing continues to be slow. Commercial construction also has been weak.
Construction employment fell by more than one-third, from 131,700 in August 2005 to 85,900 in May 2010, the same level seen in December 1995. In the past 22 months, Minnesota has gained back only 9,800 construction jobs, still 27 percent below peak employment.
With the renewal of job growth since March 2010, wages and hours have shown improvement. Figure 3 presents the average hourly wage and average weekly hours for January 2008 through March 2012 using a 12-month moving average to smooth the data. Hours dropped from 33.7 in early 2008 to 32.6 in January 2010. As employment has increased, average weekly hours have also increased by 0.8 of an hour. If the trend continues, Minnesota should regain its January 2008 level in a few months. Likewise, earnings have improved since stalling in early 2010, adding about $1.15, bringing earnings per hour to $24.57 in March 2012. These are positive trends that will help to sustain job growth by increasing disposable income.
The Unemployment Picture
Unemployment rates are one of the most commonly cited measures of economic health. While Minnesota and other Midwestern states typically have rates that are lower than the country as a whole, Minnesota’s unemployment rate tracked closely with the nation just before and during the latest recession. Minnesota’s rate, however, peaked earlier than the U.S. rate at 8.5 percent and is already below 6 percent. The U.S. unemployment rate, meanwhile, peaked at 10.2 percent and is still above 8 percent (see Figure 4).
In a poor labor market, declining unemployment rates can result from fewer people seeking employment. When workers drop out of the labor force, they’re no longer counted as unemployed. Labor force participation has been declining since the beginning of the last decade, both in Minnesota and nationwide. Although some of the recent decline is related to the recession, some is part of a longer-term trend. This trend is the result of demographic shifts, specifically the aging labor force and higher numbers of retirees. The trend is projected to continue throughout the decade.
Other measures also point to stress in the labor market. Figure 5 shows other types of unemployment and underemployment that are not counted in the official unemployment rate. “Discouraged workers” are those who have given up looking for work and therefore are not counted as officially unemployed. This group, however, does drive labor force participation rates downward. “Part-time underemployed” workers (officially called “employed part-time for economic reasons”) have had their hours cut or have accepted part-time positions even though they want full-time work. These workers also are not counted as unemployed. Instead they are counted as employed for the purpose of calculating the unemployment rate. Information on these groups is tracked in the same survey that is used to measure unemployment, and data on them are published in a series called Alternative Measures of Labor Underutilization.
During the recession, workers in both of these groups increased. The number of unemployed workers nationally peaked in December of 2009, several months after the end of the recession and the unemployment rate peak in Minnesota. In contrast, the number of part-time underemployed increased more sharply and peaked almost a year later in September 2010. Since the underemployed are included in the employed total, that increase actually lowered the unemployment rate. So while Minnesota’s unemployment rate recovery started before the official end of the recession, the driving force in declining unemployment for more than a year was an increase in part-time employment for people who wanted full-time work. All these numbers, however, are now declining, indicating a more normal labor market is returning.
Furthermore, while the labor market improves overall, not everyone is finding it easy to return to work after a spell of unemployment or non-participation. By duration, all groups of unemployed have been declining since 2009 except the long-term unemployed, defined as those out of work for more than a year. This group continues to increase (see Figure 6).
While the overall unemployment picture in Minnesota is improving, near normal unemployment rates disguise a hidden trend of people who are underemployed in terms of hours and pay or who are working in jobs that aren’t on par with the ones they lost during the recession. Moreover, the number of people who have been unable to find work for well over a year continues to swell. Incumbent workers looking to upgrade, new entrants in the labor market and newly laid off workers might find the economy only a little slow, but many others face real and continuing challenges in their personal economic situations.
Expanding Opportunities
In another indicator of an improved labor market, the ratio of unemployed job seekers to job vacancies in Minnesota continues to improve. There were 8.2 job seekers per vacancy at the peak of the recession during fourth quarter 2009. This number fell to 3.2 job seekers per vacancy during fourth quarter 2011.
Minnesota had 49,890 job openings in the last three months of 2011 (see Figure 7). While this is a drop in openings from spring 2011, the fourth quarter is always lower due to hiring seasonality. In fact, job openings in the fourth quarter of 2011 were down 8.7 percent from second quarter 2011, which is half the normal seasonal decline. More telling is the 47.6 percent increase in job vacancies from the 33,800 one year earlier. This increase — the largest annual improvement in the 11 years since the Labor Market Information Office began conducting the survey — is another strong sign of building momentum in hiring.
The majority of job vacancies (59.3 percent) were in the Twin Cities seven-county area. Compared with one year ago, the number of job vacancies increased by 54.6 percent in Greater Minnesota and by 43.2 percent in the Twin Cities. Greater Minnesota had a job vacancy rate of 2.1 percent, while the Twin Cities job vacancy rate was 2 percent. The ratio of unemployed people to job vacancies improved slightly in the Twin Cities at 2.9, while remaining stable in Greater Minnesota at 3.7.
Compared with other states, Minnesota’s labor market appears to be improving quickly. The Conference Board’s Help Wanted OnLine data series provides an opportunity to compare hiring across the country. Based on the Conference Board’s March 2012 release, Minnesota had the sixth-best ratio in the country, and the Twin Cities had the second-best among metro areas, behind only Washington, D.C. 3] The data also show that job opportunities in Minnesota have continued to grow since fourth quarter 2011.
Employment Outlook
Minnesota’s job growth over the next 10 years generally will look a lot like job growth in 2011. The state added 34,500 wage and salary jobs last year. The number of self-employed Minnesotans also rebounded, with annual average self-employment climbing by 5,300 in 2011. 4] The combined increase of 39,800 jobs in 2011 is slightly higher than the 36,800 average annual job gain projected for Minnesota between 2010 and 2020. The expected 368,000 jobs over the 10-year period would be a huge improvement over the 72,000 jobs lost between 2000 and 2010, but substantially below the 533,900 jobs added during the boom years of 1990 to 2000.
Job growth will increase in Minnesota in the next few years, but new jobs will slow toward the end of the decade as baby boom retirements peak, slowing labor force growth to a crawl. Labor shortages, on scale with the labor shortage years of the late 1990s, will curb job growth in the second half of the decade. Figure 8 displays projected labor market conditions over the next 10 years based on economic growth assumptions.
Minnesota’s long-term employment projections are based to a large degree on national projections updated every two years by the Bureau of Labor Statistics (BLS). The BLS projects gross domestic product at 3 percent annual growth during the 2010-2020 period, up from the 1.6 percent experienced over the 2000-2010 period, but slower than the 3.4 percent growth achieved between 1990 and 2000. The projected 3 percent growth leads to a full-employment economy in 2020, with unemployment at 5.2 percent nationally and 3.7 percent in Minnesota.
Minnesota’s job growth over the next decade will be generated entirely in the private sector, with state and local government job growth offset by downsizing of the federal workforce in Minnesota. Private sector jobs are projected to grow 15 percent, while government jobs will be unchanged, leading to 13 percent overall employment growth. This is slightly lower than the 14.3 percent expected nationally.
More than 60 percent of all employment expansion in Minnesota is anticipated to occur in three super sectors: education and health services (141,000 jobs), professional and business services (52,000 jobs), and construction (37,000 jobs). The construction sector is anticipated to grow the fastest as construction activity returns to historical norms. Construction payroll numbers, however, will fall short of the 2005 peak.
Minnesota’s manufacturers are projected to regain only 14,000 of the jobs lost during the recession, leaving manufacturing payroll numbers substantially below pre-recession level. Table 1 displays projected job growth in Minnesota’s 11 major industrial sectors.
Table 1
|
2010 - 2020 Projected Minnesota Employment
|
| |
Estimated 2010
|
Projected 2020
|
2010 - 2020 Numeric Change
|
2010 - 2020 Percent Change
|
|
Total Employment
|
2,830,000
|
3,198,000
|
368,000
|
13.0
|
|
Self-Employed
|
191,421
|
213,506
|
22,085
|
11.5
|
|
Natural Resources and Mining
|
31,107
|
32,720
|
1,613
|
5.2
|
|
Construction
|
87,647
|
122,050
|
34,403
|
39.3
|
|
Manufacturing
|
292,082
|
306,280
|
14,198
|
4.9
|
|
Trade, Transportation, and Utilities
|
490,694
|
542,969
|
52,275
|
10.7
|
|
Information
|
54,171
|
54,305
|
134
|
0.2
|
|
Financial Activities
|
171,329
|
186,070
|
14,741
|
8.6
|
|
Professional and Business Services
|
315,113
|
367,570
|
52,457
|
16.6
|
|
Education and Health Services
|
445,424
|
586,500
|
141,076
|
31.7
|
|
Leisure and Hospitality
|
249,008
|
268,710
|
19,702
|
7.9
|
|
Other Services
(Except Government)
|
122,853
|
132,820
|
9,967
|
8.1
|
|
Government
|
379,151
|
384,500
|
5,349
|
1.4
|
|
Source: Minnesota Employment Projections
|
All major occupational groups are expected to add jobs between 2010 and 2020. Three health care related occupational groups are expected to account for almost one-third of the projected job expansion: personal care and service (41,000), health care practitioners (37,700), and technical and health care support (32,400).
Job openings created by employment growth are only part of the future job opportunity story. The chance of scoring a job in a particular occupation also depends on how many workers are leaving an occupation and how many job seekers are looking to enter that occupation. Because of the importance of replacement needs, estimates of net replacement openings for each occupation over the next 10 years are included in the 2010-2020 employment projections for Minnesota.
In addition to the 368,000 job openings projected to be created through employment growth over the next 10 years, 663,000 net replacement openings are projected over the decade. Even occupations that are expected to shrink in size over the next 10 years will have net replacement openings. Roughly 80 percent of occupations are projected to have more net replacement openings than openings from employment growth. The need to fill replacement openings will only increase through the decade as baby boomers expand the ranks of the retired.
Wage Inequality
The recession continues to affect wages, although the impact has not been consistent across all wage levels. By studying the data on Minnesota’s year-round wage earners from 2006 to 2011, we can track the impact of the recession on different groups of wage earners and on wage inequality as a whole in Minnesota.
Before the start of the recession in 2006, the median real wage in Minnesota was $39,968 for year-round workers. This number decreased by nearly $500 in 2011. Those in the bottom 20 percent of the distribution fared worse during this period, with real wages decreasing by $623. On the other end of the wage distribution, the top 2 percent of wage earners saw real wages increase by more than $10,000, while the top 1 percent saw real wages increase by more than $15,000 per year.
Figure 9 shows the wage index from 2006 to 2011 broken out by five percentiles. The top 1 and 2 percent of wage earners (identified as the 99th and 98th percentiles on the chart) saw the steepest decline in their relative wage levels between 2007 and 2009, but they had the steepest wage growth in the following two years.
Unlike those at the top of the wage distribution, after modest wage growth in 2010, the bottom 20th and the 50th percentile of wage earners experienced another relative decline in wages in 2011. Overall, both real and relative wages for the 20th and 50th percentile of wage earners decreased during the past five years.
Just how difficult the recession and recovery has been for lower wage earners is shown in Figure 10. The period from 1995 to 1999 saw wages rise across the board, but especially for those below the median wage level (below the 50th percentile). Then, from 2000 to 2005, real wages decreased somewhat for the lowest wage earners, and increased at a much slower pace than the previous half-decade for those at the 30th percentile and above. Since 2006, wages declined even more sharply for a broader group, the entire bottom two-thirds of wage earners. Only those in the 70th percentile and above (over $56,275 per year) experienced wage growth during the past six years. In fact, the top 5 percent of wage earners actually increased their wages at a rate higher than any time during the previous half-decade.
|
Green Jobs: An Important Piece of the Recovery
By Alessia Leibert
Did the recession take a toll on the nascent green economy in Minnesota? Emerging sectors are generally hit the hardest by economic downturns because an unfavorable investment climate hurts innovative technologies and products more than established ones. In fact, the number of green job opportunities in Minnesota held steady between fall 2009 and spring 2011. Moreover, they offered higher quality employment opportunities than the rest of the economy.
Key research findings can be summarized as follows:
• Growth in hiring demand for green-related work was virtually identical to that in the overall economy, averaging 30 percent from fall 2009 to spring 2011.
• Green vacancies were found in 263 firms, predominantly private companies. Firms with fewer than nine employees had the highest concentration of green job vacancies, 29 percent.
• All “core” green sectors are well represented in Minnesota, broken down as follows: energy and resource efficiency (31 percent of job vacancies), recycling and pollution prevention (22 percent), natural resources conservation (13 percent), environmental compliance (12 percent), renewable energy (11 percent), pollution control (8 percent), and water treatment and conservation (3 percent).
• More than half of surveyed green vacancies are “growth openings” originating from business expansion rather than worker turnover. This demonstrates the emerging nature of the green economy.
• The labor market for green jobs is geographically diverse, with about half of the opportunities in the Twin Cities metro area and half outside of the metro area. Each region specializes in green products and services that best fit its distinctive assets, including natural resources, technological competencies of local manufacturers, and the local infrastructure of green services such as recycling and renewable energy generation/distribution.
• Green vacancies are generally higher quality than total vacancies, with predominantly full-time (89 percent) and permanent/non-seasonal (79 percent) opportunities and higher wage offers. Green vacancies also require a higher education level than the total population of vacancies.
• Skills in science, technology, engineering and mathematics are in higher demand than other skill areas for this group of jobs.
• Despite the dramatic employment losses in manufacturing and construction right before and during the study period, these were the industries that generated the most green job vacancies. This provides further evidence of the resilience of the sector and its growth potential as the economy continues to recover.
Green economic activities are important ingredients in the recipe for a sound recovery because they stimulate demand for high-quality jobs and help us to compete globally.
|
1]Previous recessions occurred in 2001 and 1990-1991.
[2]The 1980 recession was excluded because it overlaps with the 1981 recession, making comparison difficult.
[3]The Conference Board, www.conference-board.org.
[4]Average annual self-employment is from the Local Area Unemployment Statistics program, Minnesota Department of Employment and Economic Development.
Top