What are the forces moving the Minnesota economy? Adam Belz tries to identify the trends and show the connections between Minnesota and the larger U.S. and global economies. You can connect with him on Twitter: @adambelz

Posts about Economics

Opening Belz, Aug. 26

Posted by: Adam Belz Updated: August 26, 2014 - 10:56 AM

The nation should follow Tennessee, make community college free – Scientific American
Warren Buffett is helping Burger King with its tax inversion deal – WSJ
Toilet paper maker Kimberly-Clark goes tubeless – Milwaukee Journal Sentinel
Environmental study required for frac sand shipper in Winona – Winona Daily News
Is Colorado town “up for whatever”? Bud Lite hopes so – Denver Post
Grain shipments are backed up in the rail system and the NYT is on it – NY Times
A graphic showing the most expensive film props of all time – ShortList
A driverless car test run on the streets of Washington – Washington Post
Federal labor board rules against Jimmy John’s in fired workers case – StarTribune
Emerald ash borer marches across Iowa, confirmed in Story County – KCRG

The positive externalities of child care and market failure

Posted by: Adam Belz Updated: August 25, 2014 - 12:18 PM

We published an article yesterday about problems in the daycare market – especially in rural areas and especially for infant care. It’s become a problem for businesses and for the rural economy, because parents can’t find good enough daycare for their kids, and so either miss work or have to quit their jobs altogether.

One thing I didn’t get into in the piece was the idea that the child care market is an example of classic market failure – that is, a failure of the market to efficiently allocate resources.

There are many types of market failure – caused by monopolies, or negative externalities (for instance, when the costs of a company’s pollution aren’t born by the business or its customers).

But market failure can also happen when the benefits of a good or service spill over to society in general, and the people providing the service aren’t able to charge the customer for those spillover benefits. This is the case with child care, said Rob Grunewald, an economist at the Federal Reserve Bank of Minneapolis.

Child care serves an early childhood education function, and early education prepares kids for school, which sets them on a tax-paying, law-abiding path that is good for the economy and society. But that value is long-term and spills over to all of society — not just to the child and her parents.

The “social marginal benefit” exceeds the “private marginal benefit.” So there's a stalemate. Parents can't pay much more, providers can't charge much more, and yet providers aren't making much money. This is likely because of the spillover benefits.

“Economics tells us that when spillover benefits are present, the market tends to produce too little,” Grunewald said.

Essentially, child care is like education. It provides massive value that doesn’t show up in the price, which helps explain why there aren’t more options for rural parents. Supply isn’t keeping up with demand, because of market failure.

Minnesota lost 4,200 jobs in July, state says

Posted by: Adam Belz Updated: August 14, 2014 - 3:22 PM

Minnesota lost 4,200 jobs in July and June’s job gains were revised downward by 3,600, disappointing news in a year so far of tepid job growth for the state.

The unemployment rate remained at 4.5 percent, according to figures released Thursday by the Minnesota Department of Employment and Economic Development. The U.S. unemployment rate in July was 6.2 percent.

State economists cautioned that the job figures may be misleading. Adjusting the numbers seasonally using normal patterns of weather and the timing of school years is complicated, and has been more difficult in recent years thanks to the long, severe winters, said Steve Hine, the state labor market economist.

“By digging into the numbers a bit more deeply than just these top-level seasonally-adjusted numbers, I have to conclude that our job growth and our employment strength is considerably greater than these particular numbers would reveal,” Hine said. “Not only July’s numbers, but the numbers we have seen over the past few months.”

Still, over the first seven months of the year, Minnesota’s job market has been stuck in neutral.

After adding 41,900 positions from August to December of 2013, the state has now added a net of only 2,900 jobs since January. Some 133,000 Minnesotans are officially unemployed, and thousands more are working part-time jobs when they would rather work full-time.

The biggest job losses in July were in private education, which shed 4,800 jobs.

“We really did have a significant cutback in July in private ed that has not been typical,” Hine said.
Information, which includes publishing and broadcasting, lost 1,000 jobs. Construction lost 700 jobs. 

The losses were partially offset by gains in manufacturing, retail, transportation and warehousing, hotels and restaurants, and administrative support and temporary jobs.

One bright spot has been heavy construction, which added 500 jobs in July and has added nearly 4,000 positions in the past 12 months.

Meanwhile, Minnesota’s workforce continues to shrink, a sign the unemployment rate will continue to fall.

Labor force participation -- the share of the working-age population that is either working or looking for work -- fell to 70.1 percent. The indicator threatens to fall below 70 percent for the first time since October 1980.
Most of the decline is due to baby boomers retiring, Hine said.

While a smaller pool of workers might help job-seekers in the near term, it is a worrying sign for the long-term health of the state economy, since a robust workforce is key to business expansion.

Laura Kalambokidis, the state economist, said she’d feel better if job growth had been stronger so far in 2014, but other indicators -- like job vacancies, the average worker’s workweek, and the number of people filing for unemployment -- have been positive. 

Initial claims for unemployment insurance fell by 14 percent in July compared to a year earlier, to about 10,700.

“It would be more concerning if we were seeing more people laid off,” Kalambokidis said. “Sluggish job growth is not as worrisome as people losing their jobs.”

The debate over the reliability of the monthly job numbers is an old one, and takes on more significance in
an election year.

“They’re volatile, they get revised,” Kalambokidis said.

The state-specific monthly job numbers from the U.S. Bureau of Labor Statistics released Thursday are based on surveys that economists like Hine and Kalambokidis have argued should be interpreted with caution.

Another source of jobs numbers, the Quarterly Census of Employment and Wages, is based on unemployment insurance records, which account for all workers. Those figures are more reliable, but they are released on a six-month lag to give analysts time to collect and carefully adjust the data.

The esoteric debate over job numbers had its time in the sun in 2011, when Wisconsin Gov. Scott Walker argued the quarterly census numbers were more accurate and was lambasted for releasing them early. The fact that he did so a few weeks before his recall election opened him to extra criticism.

This post was updated at 3:22 p.m. on Thursday.

Report: Post-recession, jobs don't pay what they used to

Posted by: Adam Belz Updated: August 12, 2014 - 12:42 PM

In general, the jobs lost in the recession paid better than the jobs that have been created in the recovery and economic expansion since.

The U.S. Conference of Mayors released a report saying as much on Monday. It's not exactly news, but it's another confirmation of, as John Schmid at the Milwaukee Journal Sentinel puts it, "why the recovery lacks the feel-good quality of previous rebounds."

Schmid did a yeoman's job distilling and summarizing the findings:

...the average annual wage of jobs lost in 2008-'09 was $61,637, while the average wage of jobs gained through the second quarter of 2014 equaled $47,171.

The pre-recession/post-recession wage gap of 23% goes a long way toward explaining why the recovery lacks the feel-good quality of previous rebounds. The disparity implies that national income collectively fell by $93 billion, according to the study.

The crux of the issue is that manufacturing and construction lost a lot of jobs in the recession, but hotels, restaurants, retail and health care have been doing much of the hiring in the recovery. This chart from the report pretty much tells the story:

One other thing worth mentioning. Look at the average annual wages for professional, scientific and technical jobs. The pay is better than any of the other employment sectors listed, and it's one of the top five gainers in the past six years.

This is true in Minnesota too, where Minneapolis has had a professional jobs boom, and signals that there's still a premium for skill in the U.S. job market. However, more than any other sector, the bullish wage trend for professional jobs highlights the growing gap between skilled workers and those with lesser skills.

Map showing relative income growth by Census tract in Minneapolis

Posted by: Adam Belz Updated: July 30, 2014 - 9:02 AM

Some of you have asked for a map showing the data that backed up the story earlier this week on rising gentrification in Minneapolis. I emailed the Cleveland Fed and received their data before writing the story, but couldn't figure out how to visualize it, so I just picked some of the high-growth and low-growth Census tracts in the city and mentioned them in the story.

Luckily, Eric Roper did figure it out, and put together what I've posted below.

It's not perfect (not all tracts show up on this map, because we're just amateurs at figuring out how to get neighborhood-level FIPS codes to populate a map -- ideas welcome), but Roper's work gives a high-level picture of where the growth in income from 2007 to 2010 has been relative to tracts in the rest of the metro area.

Again, this map shows the relative change in income rankings by census tract in the two biggest cities in the metro area -- Minneapolis and St. Paul. If a tract is blue, it saw a substantial gain. The bluer the tract, the bigger the gain. If it's red, it saw a small gain or a decline.

In case anyone is interested, here is the methodology the Cleveland Fed economists used to measure gentrification: "We selected a set of 59 large cities, all of which had a population above 250,000 in the year 2000 and the largest population of their respective metropolitan area (many metro areas include more than one city). Then we ranked the census tracts of each metropolitan area by the average income of residents in the tracts. The rankings are percentiles, running from 1 to 100. Finally, we took the mean of these rankings for the tracts that are located in the largest city of the metropolitan area (referred to as the principal city in the charts below). This mean gives a sense of where the tracts of the largest city as a whole fall in the income distribution of the metropolitan area. For example, the average tract in the city of Virginia Beach was at the 66th percentile of all of the tracts in the Virginia Beach-Norfolk-Newport News metropolitan statistical area, while the average tract in the city of Newark was at the 18th percentile in the Newark, NJ-PA metropolitan division. This means that the average tract in Virginia Beach is higher income than the average suburban tract, while the opposite is true in Newark."

Now, if anybody wants me to share the data with them, I'd be glad to. You can email me at adam.belz@startribune.com

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