Editorial: What's slowing down the state economy?

Once a leader, Minnesota now is a laggard.

Last update: November 6, 2007 - 5:38 PM

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SLOWDOWN

The nation's payrolls have expanded by 4.3 percent since the start of the last recession, in 2001. Minnesota employment, by contrast, has grown by only 2.4 percent. For much of the 1980s and 1990s, Minnesota's economy grew faster than the national averages.

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After outperforming the rest of the country for a decade or more, Minnesota's economy has entered a mysterious slump. State economist Tom Stinson was the first to notice it, about two years ago, as he pored over employment and earnings data for the state revenue forecast. Then, last June, analysts were shocked when the state's unemployment rate shot above the national unemployment rate for the first time in memory.

This is not some quirk in the statistics. As reporter Mike Meyers demonstrated in Monday's Star Tribune, the slump has hit most sectors of the Minnesota job market and has now sustained itself for nearly four years. And the consequences are grave because a vibrant job market is the foundation of so much else that Minnesotans value: the state's high standard of living, its envied quality of life, the revenue stream that funds good public services.

Even the best economists seem stumped thus far. One theory blamed the national housing downturn; Minnesota is a major producer of timber, windows and other building supplies. But state labor market research director Steve Hine says the jobs slump predates the housing slump. Another theory pointed to demographics: Minnesota's population just isn't growing as fast as it was a decade ago. But that raises a chicken-and-egg question: Did the economy cool off for lack of workers, or did people stop coming because the job market cooled off? For several years, Minnesota's hot economy made it a magnet in the Upper Midwest.

The most persuasive theory came about a year ago from Matt Kramer, then commissioner of Employment and Economic Development for Gov. Tim Pawlenty. Kramer observed that economies tend to move in cycles and ventured that maybe Minnesota's economy is just taking a breather, relative to other states, after a strong decade or two.

It's not clear whether government policy plays much of a role in this mystery; a state economy is big and complex and mostly beyond the control of any one governor. Nevertheless, the slump should prompt a good close look at state economic development policy. Pawlenty's JOBZ program, whatever it might have done for a few targeted regions of the state, plainly did not spur overall job creation. Nor has the governor's no-new-taxes policy. As Minnesota has slipped in national tax rankings, its economic performance has slipped as well.

During almost five years in office, Pawlenty has made frequent use of gubernatorial commissions to study the state's big challenges, including school finance and health-care reform. He should convene a panel of experts to look into this mystery. Government isn't necessarily the flywheel of the economic engine, especially at the state level, but Minnesota can't afford to let this slowdown continue forever.

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