Minnesota and the U.S. have a productivity paradox. Output, or real GDP, is rising even though the state isn't creating enough jobs to claw back the ones lost in the recession.
I'm working on a story about this for Sunday's newspaper.
The trend is most pronounced in manufacturing. Output by Minnesota manufacturers rose 13 percent from 2007 to 2011, according to the Bureau of Economic Analysis. Over the same period, the number of manufacturing jobs in the state fell 12 percent, a total of roughly 40,000 jobs.
Several economists chalk this up to technology, globalization and recessionary belt-tightening, all of which have honed U.S. manufacturing efficiency. But Michael Mandel, an economist at the Progressive Policy Institute and former columnist at Businessweek, argues the data is flawed.
“(The numbers) don’t mean what they look like they mean,” Mandel said. “Minnesota manufacturing is not nearly so robust as the numbers make it appear.”
Growth in manufacturing in Minnesota and the rest of the U.S. is a mirage, Mandel said. He goes into great detail for his reasons here, but basically he doesn't think the output figures are accurate.
For instance, manufacturing output in Minnesota grew 7.7 percent from 2007 to 2010, but that increase was driven exclusively by growth in the computer and electronics manufacturing sector. Real GDP generated by computers and electronics in Minnesota shot up 83 percent between 2007 and 2010, according to the BEA.
Mandel is deeply skeptical. He argues the figure is misleading because it overvalues finished products created in the U.S. and undervalues the parts that were imported from other countries. Government agencies have trouble tracking the value of a finished good through global supply chains for several reasons, he said, including an inability to adjust prices on a good when a company switches suppliers.
The BEA acknowledges the data isn't perfect, though it doesn't say the problem is as bad as Mandel thinks it is. BEA officials were not immediately available for comment, but I might be able to talk to them Wednesday.
Officials at the Bureau of Labor Statistics also acknowledge that offshoring may skew output figures. But that agency thinks the impact on the productivity index is limited, unless manufacturing is isolated. When manufacturing is isolated, there is some distortion in productivity.