economy demographics 072508
DESCRIPTION
Tom Stinson, MN State Economist and Tom Gillaspy, MN State Demographer, delivered a powerful presentation at a Minnesota High Tech Association CEO Briefing last summer.TRANSCRIPT
Minnesota’s Economics & Demographics
Looking To 2030 & BeyondLooking To 2030 & Beyond
Tom Stinson, State Economist
Tom Gillaspy, State Demographer
July 2008
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 leads the frost belt
• We rank with the leaders on many social and economic indicators
• Education has been a key contributor to the state’s success
Minnesota’s Economy Has Changed Since the 1960s
0% 5% 10% 15% 20% 25%
Govt
Financial
Services
Trade
TCU
Const
Mfg Adj
Res Based
2001 1963
% of GSP
Minnesota’s Per Capita Personal Income Exceeds the U.S. Average
by 6 Percent
• Minnesota ranked 14th in personal income per capita in 2006- - - In 1960 Minnesota ranked 25th
• Personal income per capita grew at an average annual rate of 6.8 percent between 1960 and 2005
• Since 1960 per capita personal income has grown faster in Minnesota than in most states outside the Southeast
Minnesota’s GDP Growth Rate Exceeded the US Average, 1967-
2007
Minnesota Private Industry Has Generally Matched National Growth
Index Of Private Industry GDP
0
20
40
60
80
100
120
140
160
180
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
1997
=10
0
US
Mn
BEA. Before 1997 based on SIC. Since 1997 NAICS
2007 Minnesota Per Capita GDP Is 8.8% Above The National Average
BEA
Payroll Employment Growth1972-2007
Payroll Employment in Minnesota Has Grown Faster than the US Average
Manufacturing Employment1972-2000
Minnesota’s Unemployment Rate Has Been Well Below the US Average
Minnesota Per Capita Income Has Grown Faster Than The Nation’s
85%
90%
95%
100%
105%
110%
1930 1940 1950 1960 1970 1980 1990 2000 2007p
Per Capita Income
Per Capita DisposableIncome
Minnesota A Leader Among Northeast and North Central States In Population Growth
Since 1990, Slightly Slower Than The National Average
BEA from Census. US=1.1%, Mn 1.0% per year
Minnesota Ranks Highly in Many Social/Economic Indicators
• 2nd percent of 16-64 employed (76.9%)
• 2nd cost of living adjusted per capita income (OK DOC)
• 8th lowest poverty rate
• 1st percent with health insurance 2004-06 ave
• 9th median family income in 2006
• 2nd Kids Count 2007
• 4th most livable state (Morgan Quinto Press)
• 4th lowest rate of disability among people age 16-64
• 1st with at least high school degree (90.7%)
• 12th with at least a bachelor’s degree
• 1st home ownership
• 2nd United Health Foundation ranking of state healthiness 2007
Updated July 2008
Past PerformanceDoes Not EnsureFuture Results
From 2004 to 2007 Minnesota Underperformed the US Averages
• Personal income growthUS 6.2% MN 4.4%
• Per capita personal income growth US 16.6% MN 13.5%
• GDP growthUS 8.4% MN 4.8%
• GDP per capita growthUS 5.4% MN 2.6%
Minnesota Payroll Employment Has Struggled Since Early 2006
Minnesota’s Unemployment Rate Now Is Similar to the US Average
US Manufacturing Employment Fell Faster Than MN, 2000-2007
Minnesota Ranked 30th in Employment Growth, 2000-2007
Minnesota Ranked 24th in Real Per Capita GDP Growth, 2000-2007
Real Per Capita GDP Growth Compared to Neighboring States
2000-2007
Real Per Capita GDP Growth Compared to Midwestern States
2000-2007
Real Per Capita GDP Compared to High Tech States 2000-2007
But… What AboutBut… What About Tomorrow?Tomorrow?
Economic Fact of Life #1First Principle of Economic Growth
Standard of Living depends on output per resident
Output = Output per Hour * Hours Worked
Four Mega-Forces Will Shape Minnesota’s Economy
• Globalization
• Technology
• Energy prices
• Demography
The Three Big Demographic Trends
• Growth and suburbanization
• Increased diversity
• Aging
By 2020 Minnesota will add about ¾ By 2020 Minnesota will add about ¾ Million People & 1/3 Million HouseholdsMillion People & 1/3 Million Households
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
1970 1980 1990 2000 2007 2010 2020 2030
State Demographer projection revised 2007
State: 518,000
-8,779 to -1 0 to 999 1,000 to 4,999 5,000 to 65,348
Projected population change2005 to 2015
Suburban & Exurban Growth Coupled Suburban & Exurban Growth Coupled With Rural DeclinesWith Rural Declines
Central Cities Have StabilizedCentral Cities Have Stabilized
Upper Midwest Becoming More Diverse But Still Less Than The Nation
4.1%
11.4%
6.3%
5.8%
8.8%
8.7%
24.4%
9.0%
23.9%
14.1%
9.6%
13.4%
14.3%
33.6%
0% 10% 20% 30% 40%
Iowa
Hennepin Cnty
Minnesota
North Dakota
South Dakota
Wisconsin
United States
Percent Population of Color
2006
1990
Note: Population except white alone, not Hispanic, 2006 Census Bureau estimate. Hennepin in 2005
In 2006, Minnesota’s Foreign Born Workforce Was 240,000 or 8% Of The
Total Workforce
0 10000 20000 30000 40000 50000 60000
Less Than HighSchool
High School
Some College
Bachelor's Degree
Advanced Degree
2006 ACS
From 2010 to 2020, Minnesota Will See Large Increases Age 50s and 60s
20,15036,190
47,3305,050
-30,680-9,980
47,95061,920
-2,680-63,650
-42,31054,240
102,960112,540
91,37041,400
8,44016,500
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84
85+
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
Wo
rke
d W
ith
in P
as
t 5
ye
ars
2005 ACS
Childless Couples And 1-person Households Projected To Grow
-24,500
29,000
-7,200
127,700
6,400
77,800
24,000
Married with Kids
Single Parents
Married No Kids,under 55
Married No Kids, 55+
Living Alone Under55
Living Alone, 55+
Other Households
Projected change, 2005 to 2015
Minnesota State Demographic Center projections
Competition For The Future Workforce Will Increase
6.8%
4.5%
-1.6%-2.2%
13.0%
-1.2%
-3.5% -3.0%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
2000-05 2005-10 2010-15 2015-20
Per
cen
t C
han
ge
18-2
4 US
Mn
Census Bureau US Proj, Mn State Demographer revised 2007
Labor Force Growth Is About To Slow Sharply
1.52%
1.12%
0.75%
0.43%
0.10% 0.13%
0.27%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
1.4%
1.6%
1990-2000
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
Ave
An
nu
al C
han
ge
Migration Increases in Importance as Labor Force Growth Slows
-100,000
0
100,000
200,000
300,000
400,000
500,000
2000-10 2010-20 2020-30
Total Natural Part Rate Migration
Net Labor Force Growth
State Demographer projection revised 2007
The Three Most Important Factors For Future Economic Success
1. Productivity
2. Productivity
3.Productivity
Economic Fact of Life #2
• Productivity depends on
– The stock of physical capital
– The stock of human capital
• Education
• Health status
– The stock of infrastructure
– Advancements in technology
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
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 Y
r A
ve R
ate
2004-05 through 2005-06 graduates. Based on 10th grade enrollment three years earlier.
Managing State Finances Will Be Challenging
Minnesota’s Population Will ChangeThe Three Largest Cost Drivers In The State Budget
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
18-24
65+
5-17
Census counts & State Demographer projection, revised 2007
Health Care Spending Jumps After 55U.S. Health Care Spending By Age, 2004
$1,855$1,074 $1,445
$2,165$2,747
$3,496
$6,694
$9,017$9,914
$3,571
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
<55-
14
15-2
4
25-3
4
35-4
4
45-5
4
55-6
4
65-7
475
+
Avera
ge
Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.
State Taxes Paid by a Married Couple Before and After Retirement
Income Income Tax
Sales Tax
Total Change Pct
Working
$35,000 $1,236 $782 $2,018
$65,000 $3,387 $1,295 $4,682
Retired @ 70 %
$25,000 $0 $559 $559 -$1,459 -72%
$45,000 $1,091 $896 $1,987 -$2,695 -58%
State/Local Government’s Share of Personal Income Has Declined
16.3%15.9%
17.4%
15.4%
17.9%
10%
15%
20%
1990 1992 1994 1996 1998 2000 2002 2004 2006
Calendar Year
Price of Government
Mn Dept of Finance
Estimating the Volatility of a System of Taxes
• Markowitz’s modern portfolio theory used as a guide:– The expected growth rate in revenues is the
weighted sum of the individual growth rates– Portfolio volatility is the square root of the
weighted sum of the variances and covariances of the individual components
Portfolio Theory Suggests Using a Tax System that Minimizes Volatility for a Given
Growth Rate
• Given the trend growth rate, variance and covariance of each major tax, an Efficiency Frontier Line (EFL) can be estimated
• The EFL shows combinations of taxes that provide the lowest volatility for each growth rate
• Points below the frontier are suboptimal.
• The EFL is determined using quadratic programming to minimize state tax revenue volatility, σ2
T, given growth rates gT
Actual FY 2005-2007
Portfolio
Efficient Tax Mix
Portfolio
Difference: (Efficient Less Actual)
Trend Growth Rate 7.70% 7.70% 0.00%Volatility (Standard Deviation)
3.26% 3.09% -0.17%
Share of Total Tax Revenue
General Sales 31.2% 60.3% +29.2%
Corporate Income 7.4% 13.1% +5.6%
Individual Income 48.1% 9.2% -39.0%
Other Revenues 13.3% 17.4% +4.2%
Total 100.0% 100.0%
Actual vs. Efficient MN One-Year Tax-Mix Given the Current Trend Growth Rate
Summary
• Minnesota has been very successful
• We are in a period of rapid and critical change
• What we do today will shape our future for the next quarter century
• Productivity increases will be the key to further growth throughout Minnesota