About a dozen states now have record-low unemployment rates — and Minnesota's is nearly the lowest of them all.
At 2%, the state's jobless rate is the second-lowest in the nation, tied with Utah, and is about a full percentage point lower than it's been for most of the last two decades. It's also well below that of the rest of the nation — 3.6%.
Only Nebraska, a state about one-third the size of Minnesota, comes in lower, at 1.9%.
"It's one of those classic econ questions where you have to say, 'On the one hand, and on the other hand,'" said Louis Johnston, an economics professor at the College of St. Benedict and St. John's University in St. Joseph, Minn.
For workers, historically low unemployment is a very good thing.
"It means that if you're out there looking for a job, your chances are probably as good as they'll ever be right now," Johnston said.
And because there is a smaller pool of people looking for work, they're likely to see bigger wage increases as employers dangle more incentives to attract them. Wages have been rising in the last year, particularly for the lowest-paying jobs.
But for consumers and businesses, it's not necessarily such a great thing, said Alan Benson, a professor of applied economics at the University of Minnesota.
"You don't get to 2% unemployment without some other warning signs flashes," he said. "One of the big challenges is when you get down to that low unemployment rate it can be very difficult for some employers to get people who have the skills that they need."
In addition to having to pay higher wages, productivity can fall if businesses can't find candidates to fill those roles. And costs for consumers can go up.
"When you see rising costs and lower productivity, that's really a prime recipe for inflation," he said. "So the unemployment rate, inflation and growth really go hand in hand."
Wages have risen an average of 3.4% in Minnesota, and 5.5% in the U.S., over the last year. But given that inflation in the U.S. is at 8.6% right now, that "really isn't a raise at all," Benson said.
"What we've traditionally thought was that we'll start to see that unemployment has gone too low when wages start to rise excessively," said Mark Wright, research director at the Federal Reserve Bank of Minneapolis. "I should point out that wages in aggregate are not rising very fast compared to the rate of inflation, although they are rising fast for some workers and not others."
He added that you wouldn't necessarily want unemployment to drop all the way to zero because there's a natural churn in the market with some people leaving jobs and taking a little bit of time to find new ones.
"That's healthy to some degree," he said.
The Federal Reserve has a dual mandate to use its tools to achieve a balance between stable prices and "maximum employment." Until several years ago, many economists thought the latter could be reached at a U.S. unemployment rate of between 4 and 5%. But as it dropped to 3.5% in 2018 and 2019, and inflation still remained low, some economists began to revise their expectations.
But those particular targets for the unemployment rate aren't as meaningful at the state level, said Wright.
"It obviously varies across states," he said. "And Minnesota has traditionally had a somewhat lower unemployment rate than many other states."
That's because of the state's diversified economy and the relatively high proportion of residents with a college education.
In coming months, the Fed will continue raising interest rates to drive inflation down. As the economy slows, some people are likely to be pushed out of work, leading to a bump in the unemployment rate.
"But we're trying to avoid a situation where it increases a lot," Wright said.
It was just two years ago when Minnesota's jobless rate spiked to the highest on record since it started being tracked in 1976. It soared to a historic high of 10.8% in May 2020 in the first painful months of the pandemic.
It's been steadily declining since then.
At one point, it was going down but "for the wrong reasons", said Steve Grove, the commissioner of the Minnesota Department of Employment and Economic Development. People were dropping out of the labor force, leading to a smaller labor pool and lower jobless rate.
But more recent declines have been due to people getting back into the labor market, which is a good sign, he said.
Still, there are about 78,000 fewer workers in Minnesota's labor force compared to before the pandemic. And employers are eager to hire, with job vacancies at record-high levels, outnumbering the unemployed by more than two to one.
DEED calculates that Minnesota now has the fifth-tightest labor market in the country.
Growing the state's workforce is one of the agency's top priorities, Grove said. One challenge: Minnesota's overall population this decade will grow at the slowest rate in the state's history.
He's encouraging businesses to raise wages further to help lure more workers off the sidelines. He noted that the state's Black unemployment rate actually went up last month to 6.9%.
"You've got a lot of labor out there is available and not being tapped," he said. "If we can't find a way to lower those job vacancies, we're going to underperform as an economy because we don't have the people to do the work."