Minnesota’s economic policies create path to prosperity

In June, Minnesota recorded the lowest state unemployment rate ever — an astonishingly low 1.8%. In July, Minnesota’s unemployment rate remained 1.8%, again the best in the nation since unemployment rates were tracked beginning in 1976.

The national unemployment rate in July was 3.5%. In Michigan, it was 4.2%. For perspective, Minnesota ranked No. 1 for that period while Michigan came in at No. 43.

Minnesota also is a national leader in labor force participation with 68.5% of Minnesotans 16 and older either working or looking for work in July. That was fifth-best in the nation. Michigan landed at No. 40 with 60.5%.

If Michigan’s unemployment and labor force participation rates were the same as Minnesota’s, there would have been 5.4 million Michiganders working in July rather than 4.77 million. That’s a difference of 630,000 more Michiganders who would be working today if the state was doing as well as Minnesota.

Not only are more Minnesotans working than Michiganders, they earn more, too. Average hourly wages for private sector workers in Minnesota in July were $34.43, which is 6.7% higher than the nation. That compares to $29.95 in Michigan, or 7.2% lower than the nation. For a full-time, year-round worker, the difference between $34.43 per hour and $29.95 is more than $9,000 annually.

This, of course, raises the question: What has Minnesota done to enjoy such a large employment and wage premium compared to Michigan? In 2014, we asked veteran Michigan business journalist Rick Haglund to answer that question. His report, “State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Help it Achieve the Best Economy Among Great Lakes States,” is as valid today as it was eight years ago. Yes, the data in the report needs updating, but the description of the path Minnesota has taken for more than five decades to get to a record-setting unemployment rate along with higher wages is still accurate today.

Maybe most important is what Minnesota has not done:

  • Minnesota did not lower taxes. In fact, as Haglund documents, in 2013, when Michigan was slashing business taxes, Minnesota raised taxes on companies and the wealthy. Now with income tax rates ranging from 5.35% to 9.85%, Minnesota ranks No. 45 in both overall and corporate taxes in the Tax Foundation’s 2022 State Business Tax Climate Index.
  • Minnesota did not slash its safety net. As Haglund wrote: “Many states have cut benefits to the poor and unemployed in the belief that these payments dissuade people from looking for paid work. Minnesota takes a different view. It has created one of the strongest safety nets in the country, spending generously on benefits to help those who have lost jobs or been stricken by poverty get back on their feet. That protective net has not trapped Minnesotans and turned them into a bunch of government-dependent slackers. Far from it.”
  • Minnesota does not offer big incentives for economic development projects. Read the Minnesota Economic Development Resource Guide and you will not find any big incentive program like SOAR, Michigan’s new $1 billion dollar business incentive program.

Michigan has, of course, done the exact opposite. On a bipartisan basis accepting that high taxes, particularly on businesses, are job killers, Michigan has anchored its economic development playbook on cutting taxes for at least three decades. And, also on a bipartisan basis, enacting for those same three decades one version after another of big economic development incentive programs. It also slashed the state’s safety net in part based on the belief that a more generous safety net discourages people from working.

It is hard to assess this policy regime as anything but a failure, particularly when compared to Minnesota, which has deployed a policy regime that rejects each of these three pillars of Michigan’s strategy.

Haglund’s report details what Minnesota has done with more revenue because of higher taxes and lower business incentives. As he wrote:

“… It (Minnesota) has largely invested that additional revenue in services and investments that matter in a knowledge-based economy. An educated work force, efficient transportation systems, vibrant cities and metropolitan areas, and a secure safety net for those making the transition to a global economy all matter in creating a prosperous state.

“Minnesota has made those necessary investments and enacted policies making the state welcoming to all. It really shouldn’t be surprising, then, that it has the strongest economy in the Great Lakes region and one of the most vibrant in the country.”

Minnesota has developed a policy playbook that makes preparing, retaining and attracting talent its top economic development priority. Minnesota’s focus on making public investments in education from birth through college and creating high quality of living communities combined with being welcoming to all is the foundation for a state economy with record low unemployment rates and more good-paying jobs.

Lou Glazer is president of Michigan Future Inc.