… But, What About Tomorrow?

Tom Stinson, State EconomistTom Gillaspy, State Demographer

January 2007 2008

Last Year, We Said• Minnesota is prosperous• Wise decisions made 50+ years ago made

that prosperity possible– Investment in education and human capital– Investment in infrastructure– Investment in research and innovation

• But, … we are aging • Productivity is even more important • Wise decisions once again are needed

Last Year’s Issues Have Not Gone Away

From 2005 to 2015, Largest Growth in Minnesota Will Be in Ages 55 to 69

16,2003,9006,700

44,50098,000

119,400107,200

55,500-43,400

-64,100-700

67,20051,800

-9,600-29,200

7,40049,100

37,600

85+80-8475-7970-7465-6960-6455-5950-5445-4940-4435-3930-3425-2920-2415-1910-14

5-90-4

Source: Minnesota State Demographic CenterNumbers are rounded

The Number of Workers Turning Age 62 Will Jump 30 Percent in 2008

0

10,000

20,000

30,000

40,000

50,000

60,000

7/05 to7/06

7/06 to7/07

7/07 to7/08

7/08 to7/09

7/09 to7/10

7/10 to7/11

7/11 to7/12

Year Turning Age 62

Wor

ked

With

in P

ast 5

yea

rs

2005 ACS

New Entrants to Minnesota’s Work Force Plateau as Baby Boomers Retire

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1950 1960 1970 1980 1990 2000 2010 2020 2030

18-2465+

Census counts & State Demographer projection, revised 2007

New Concerns Have Emerged

Minnesota’s Economy Has Struggled in 2007

Payroll Employment in Minnesota Has Fallen

98.5

99.0

99.5

100.0

100.5

101.0

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov

Index

US MN

Minnesota’s Unemployment Rate Has Been at or Above U.S. Average

3.50

3.75

4.00

4.25

4.50

4.75

5.00

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov

Percent

US MN

Has Something Changed?

… But, What About Tomorrow?

There Is Not Much the State Can Do About Short Term Economic Fluctuations

Short Term State Stimulus Seldom Makes a Difference

• Economic downturns typically are short

• They can be over before a stimulus program is enacted

• A recovery is likely to be underway before any additional spending occurs

• Only a small amount of capital spending occurs in the first year

… But, What About Tomorrow?

Minnesota May Be Losing Ground

• Per capita income growth has fallen below the U.S. average

• Payroll employment has grown more slowly here than elsewhere

• Our unemployment rate has been above the U.S. average

• Labor force participation rates have fallen• We show signs of slipping in education

Minnesota Employment Growth 2001-07

-3

-2

-1

0

1

2

3

4

5

Jan01

Jul01

Jan02

Jul 02

Jan03

Jul 03

Jan04

Jul 04

Jan05

Jul 05

Jan06

Jul06

Jan07

Jul07

US MN

Pecent Change Since February 2001

Per Capita Personal Income Growth In Minnesota Is Slowing

11

8 89

109

87 7

11

13

0

3

6

9

12

15

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Rank% of US Avg

Minnesota Ranks 36th In Job Growth Since 2001

-10

-5

0

5

10

15

20

25

30

NV AZ

WY

UT ID MT FL HI

NM AK

ND TX WA

SD VA MD

OR SC OK AL

NE

GA

US

NC AR

DE

CO RI

CA

WV TN IA NH NJ

KS

MS

MN

MO WI

KY

PA VT IN ME CT

NY LA IL MA

OH MI

Perc

ent C

hang

e

Past PerformanceDoes Not EnsureFuture Results

How Do We Encourage Long Term Growth?

Economic Fact of Life #1

Standard of Living depends on output per resident

Output = Output per Hour * Hours Worked

Economic Fact of Life #3

• Productivity depends on – The stock of physical capital– The stock of human capital

• Education• Health status

– The stock of infrastructure– Advancements in technology

Education Is The Key To Productivity

Minnesota High School Graduation Ratio

57%

85%

60% 62%

89% 85%

0%10%20%30%40%50%60%70%80%90%

100%

AmericanIndian

Asian Hispanic Black White Total

2 Yr

Ave

Rat

e

2004-05 through 2005-06 graduates. Based on 10th grade enrollment three years earlier.

Academic Research Is a Key Factor in State Economic Growth

• “the lags between R&D and economic outcomes are quite long (at least years, and more likely decades)

• “The state … may do well for a while by drawing upon its existing stock of knowledge capital

• “How the state of Minnesota will fare in the future … will crucially depend on its recent and future investment in R&D

*Long Gone Lake Wobegone, Pardey, Dehmer and Beddow, 2007

R&D Spending Slowed in the Early 90sWe Are No Longer Above Average

Rank 1972 Rank 2004

Total Academic R&D 19 26

Academic R&D per capita

20 40

Academic R&D per dollar of GSP

20 43

Budget Pressures Will Change More 65+ Than School Age by 2020

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1950 1960 1970 1980 1990 2000 2010 2020 2030

18-2465+5-17

Census counts & State Demographer projection, revised 2007

Minnesota Has Been Very Successful (Especially For a Cold Weather State at the End

of the Road)

• Our economic growth rate has exceeded the national average

• Our population growth rate has led the frost belt

• We have ranked with the leaders on many social and economic indicators

• Wise decisions are needed for future prosperity

How will Minnesotans 50 years from now view our generation’s stewardship?