This Time, No Minnesota Miracle

By Dave Senf
March 2011

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Minnesota's economy is rebounding from the Great Recession at a faster pace than the rest of the country, but the recovery this time looks nothing like the rebound after the 1990-91 recession.

Trends published an article several years ago—“Moving on Up: The Great 1990s Minnesota Expansion”—that praised Minnesota’s economic performance during the 1990s.[1] The state economy got a head start on the boom years by managing to avoid the worst of the country’s first jobless recovery following the 1990-91 recession. Minnesota’s job growth surged while the national job market limped along for two more years after the recession.

Minnesota employers increased payroll numbers at roughly twice the national rate between 1991 and 1993, hiring 4 percent of all employees added to U.S. payrolls during the first jobless recovery. As a result Minnesota’s share of the nation’s wage and salary employment shot up above 2 percent for the first time (see Figure 1). Job growth in the state continued to outpace national job growth, albeit not by much, through 1996, roughly tracked national job growth for the rest of the boom years and through the 2001 recession, then slipped behind the national pace in early 2003.

Minnesota workers benefited from what was essentially an 18-year economic expansion that kicked off in 1984. Near the end of the expansion, labor shortages developed and unemployment dropped to record lows. Minnesota’s average annual unemployment dipped below 4 percent for seven straight years between 1995 and 2001, achieving a record-low 2.8 percent unemployment in 1998 and 1999.

The state was a job seeker’s nirvana during the late 1990s, producing record labor force participation and employment-to-population levels. The low jobless rate even induced domestic migration to Minnesota for the first time in three decades as workers relocated from other states to take advantage of favorable job opportunities.

Wages for Minnesota workers increased faster than nationwide in response to the tight labor market, driving Minnesota’s average annual wages and
salaries from 2 percent below the national average in 1995 to 2 percent above by 2003. 

The net result: By all broad economic measures Minnesota’s economy outperformed the national economy during the 1990s, boosting the state’s relative economic position to an all-time high. 

One decade, one mild recession and one Great Recession later, Minnesota’s share of the national economic pie has slipped a bit, but the gains achieved during the boom years haven’t completely faded. Minnesota is rebounding faster than the rest of the country from the Great Recession, and its relative economic picture is once again on the upswing.

The state lost a smaller share of its payroll employment than the rest of the country during the Great Recession, with a peak-to-trough decline of 5.8 percent versus 6.1 percent nationally. More importantly, the state has been adding jobs at a much faster pace than the country since job growth resumed in late 2009.  

Payroll totals in Minnesota climbed 1.9 percent between September 2009 and November 2010, or almost three times as fast as the 0.7 percent increase nationally. 

There is still a long and bumpy job recovery ahead for Minnesota and the rest of the country, but for now the state is gaining ground relative to the rest of the nation. Through last November, Minnesota had recaptured 33 percent of the jobs lost during the Great Recession, while nationally only 11 percent of the jobs had been recovered.    

Minnesota’s relatively strong job growth over the last year has lifted its share of payroll employment to near the record level recorded during early 2003. Other broad economic measures have stopped slipping and will likely move upward again if Minnesota’s job growth continues to run ahead of the national pace.

During the boom years of the 1990s, Minnesota’s per capita personal income and median household income rocketed to the upper tier after having hovered in the mid-teens during the previous two decades (see Figure 2). 

Minnesota’s per capita income climbed to the eighth-highest by 2003 before starting to tail off as state job growth lagged behind the national rate. Over the last few years, Alaska, California, Illinois, Hawaii, Virginia, Washington and Wyoming have passed Minnesota, pushing the state’s standing down to 15th in 2009. Minnesota’s per capita income slipped from 9.4 to 5.6 percent higher than the U.S. average between 2004 and 2009. The decline translates into $1,500 per person in 2009.

U.S. census data on median household income nationally show a similar track for Minnesota. The state’s median household income ranking jumped from the mid-teens in the early 1990s to second place behind Maryland in 2000 before dropping to 11th in 2009. Minnesota’s median household income was reported by the census to be 29.2 percent higher than the national median household in 2000. Nine years later the state’s median household income was only 12.7 percent higher than the national median household. 

The state’s 2009 median household income would have been roughly $64,300 rather than the actual $56,100 reported for 2009 if Minnesota had held on to the 29.2 percent advantage enjoyed in 2000.

Minnesotan’s relative income slide between 2003 and 2009 occurred across all major components of personal income except for personal current transfer receipts (see Figure 3).[2] Personal current transfer receipts are primarily government payments, including Social Security, Medicare and Medicaid benefits, food stamps, veterans benefits and unemployment insurance compensation. Minnesota’s share of these sources of income declined during the boom years but climbed over the last decade. Minnesota’s share of the other personal income components, including the largest source of income, wage and salary disbursements, spiked during the boom years before peaking around 2003. Wages and salaries then waned from 2005 to 2007 before flattening out during the Great Recession. Most of the state’s relative loss in per capita income can be traced to lower shares of wage and salary disbursements and dividends, interest and rent income.

Minnesota’s share of the national wage and salary pie probably got a tad bigger in 2010 because the state added jobs at a faster clip than many other parts of the country. Unlike some other states, Minnesota is not experiencing a jobless recovery. The employment rebound may not be as robust as hoped for, given the depth of job loss during the Great Recession, but job opportunities are improving as layoffs gradually return to pre-recession levels and hiring slowly picks up. 

Job creation over the last year in Minnesota has been led by the administrative and waste services (temp help jobs), accommodation and food services, and health care and social assistance sectors. Manufacturing, private educational services, retail and information hiring have also shown encouraging signs of life. 

The dismal housing market continues to be a major roadblock to a more robust job market, with construction and real estate jobs declining over the last year. Those sectors added jobs during the previous recoveries. 

Job growth over the last year looks a lot more like job growth experienced after the 1990-91 recession than after the 2001 recession (see Figure 4). Minnesota’s payroll employment through November 2010 was up 40,700 jobs in the 14 months since bottoming out in September 2009.  Fourteen months after the 1990-91 recessions 50,100 jobs had been added to Minnesota payrolls. Minnesota’s first and so far only jobless recovery followed the 2001 recession, when just 1,700 jobs had been added 14 months after bottoming out.[3]  

While Minnesota has for now dodged another jobless recovery and is again gaining a larger share of the nation’s economic pie, the state’s labor market has just begun to climb out of the deep job hole carved out by the Great Recession. The state needs three more years of job growth similar to last year’s pace to fully regain the jobs lost in 2008 and 2009.

ENDNOTES:

[1]Senf, Dave, “Moving on Up: The Great 1990s Minnesota Expansion,” Minnesota Economic Trends, January 2004.  
[2]More information on state personal income estimates by the Bureau of Economic Analysis can be found at http://www.bea.gov/regional/spi/.
[3]To smooth out the monthly swings in Current Employment Statistics data, the three-month average surrounding the month when jobs bottomed out during the past recessions are compared with the three-month moving average 14 months after each recession. 

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