June 2016
Seven years after the end of the recession, Minnesota's economy continues to improve and, by many measures, ranks among the best in the country. Some challenges are on the horizon, however.
The following writers contributed to this story: Steve Hine, Amanda Rohrer, Oriane Casale, Dave Senf and John Clay.
A we do in every June edition of Trends, this issue contains a series of articles reviewing Minnesota's recent labor market performance. These articles make clear that our economy has improved and left the damages of the Great Recession further behind.
June is the seventh anniversary of the start of the current expansion, which includes four years that were spent simply regaining the 159,300 jobs lost during the 18-month-long recession. As of May's preliminary employment estimate, Minnesota's economy has now added 108,100 jobs above and beyond the peak of early 2008.
The post-recessionary improvement in our unemployment rate appears to reveal a less robust recovery. Since peaking at 8.1 percent in June 2009, the unemployment rate took until August 2014 to regain the pre-recessionary low of 3.8 percent. This rate then fell further to 3.6 percent, where it stood throughout most of 2015 before edging back up to its current rate of 3.8 percent. In other words, we have seen nearly 64,000 additional jobs but little improvement in our unemployment rate for going on two years.
Part of the explanation for our lack of continued improvement in this regard lies in our persistent racial disparities, a topic covered in this and other issues of Trends. But digging into the data underlying these unemployment figures tells an additional story: Relative to other states, we have recently regained our previous status as the state with the nation's hardest-working population!
Between June 1990 and October 2004, Minnesota had a spectacular run of over 14 years as the state with the highest labor force participation rate. This and a relatively low unemployment rate combined to produce an equally amazing 13-plus-year run (March 1990 to June 2003) as the state with the highest share of our working-age population (16 years and older) employed, the so-called employment-to-population ratio.
With the onset of the Great Recession, this standing began to fade. Our labor force participation fell to sixth-highest and employment-to-population dropped to eighth by the time the recession officially began in December 2007. Slowly but surely, though, we have seen gradual improvements in rank since. As of November 2015, we once again achieved top ranking in labor force participation, followed this past March with the highest employment-to-population ratio. Considering it has been 13 years since we had the top rank by both these measures, this is a significant indicator of the relative strength of our state's current economic climate.
Granted, a good share of our improved ranking comes not from increased rates of participation and employment here, but through declines occurring elsewhere. The four states with participation rates above ours in April 2008 (Iowa, Nebraska, North Dakota and South Dakota) have all seen a 2.9 percentage point reduction in their rate, with the exception of South Dakota, where the decline was 3.4 points. Our rate fell only 1.6 points.
In addition to those four states, Kansas and Wyoming also exceeded us in employment-to-population in April 2008. Their employment rates, however, have fallen 1.6 and 5.1 points, respectively, while ours has increased 1.5 percentage points over the same span. Those other four states that outranked us have also seen their employment ratios slip, between 0.8 and 2.1 points, allowing us to surpass them as well.
So back to that stubborn unemployment rate of ours. While the lack of improvement by that measure might suggest a stagnating recovery, we have seen a distinct improvement and a return to our previous No. 1 ranking in two other very important indicators. As a share of our working-age population, more Minnesotans are in the workforce and working than in any other state.
This raises two related questions that will deserve our attention in the months and years ahead. One is whether the tight market conditions suggested by our high participation and employment rates may explain why our job growth has been lagging the nation and most other states over the last two years. Have we started to experience the constraints imposed by a shortage of additional workers well ahead of many other states? And the other question is whether this constraint will only tighten further and lead to even slower job growth in the coming years. With nation-leading participation, do we have less room to maneuver through the coming worker shortage than other states?
While the state's unemployment rate has been largely stable since mid-2014, the labor force grew by 83,316 people during that period. Meanwhile, the increase in the labor force participation rate, from 70.1 percent to 71.2 percent, suggests that 32,849 Minnesotans who had been nonparticipants either started working or started looking for work. The other 50,000-plus people came from population growth, including new residents or people turning 16 and newly eligible to work.
There is further evidence that people chose to return to the labor market or enter it for the first time over this period. During the recession and the early part of the recovery, people remained unemployed for longer periods. Until recently, however, all groups of unemployed by duration have been declining since 2011. Starting at the end of 2014, or shortly after the unemployment rate leveled off, one group has been increasing dramatically – people unemployed for fewer than five weeks. This suggests that people are quitting jobs that are undesirable and finding new jobs relatively quickly.
Employment growth has not occurred evenly across industries. While most industries saw declines during the recession, some of those declines were small and returned to a normal pattern fairly quickly. Other industries lost jobs precipitously before bouncing back quickly. Others have only recently returned to pre-recession employment levels.
In Table 1, employment growth is displayed for the period since unemployment leveled off. A decline does not mean employment in the industry hasn't recovered since the recession, only that growth has stalled since August 2014.
| Employment Growth by Selected Industry Since August 2014, Seasonally Adjusted | |||
|---|---|---|---|
| August 2014 | April 2016 | Percent Change | |
| Total Nonfarm | 2,824,900 | 2,891,800 | 2.4 |
| Mining and Logging | 7,200 | 6,100 | -15.3 |
| Construction | 108,900 | 122,400 | 12.4 |
| Manufacturing | 313,500 | 318,800 | 1.7 |
| Wholesale Trade | 132,000 | 129,900 | -1.6 |
| Retail Trade | 289,400 | 299,400 | 3.5 |
| Transportation, Warehousing and Utilities | 96,500 | 99,900 | 3.5 |
| Information | 52,500 | 49,700 | -5.3 |
| Financial Activities | 178,500 | 184,500 | 3.4 |
| Professional and Business Services | 354,700 | 362,300 | 2.1 |
| Educational Services | 65,500 | 70,000 | 6.9 |
| Health Care and Social Assistance | 434,900 | 453,300 | 4.2 |
| Leisure and Hospitality | 255,700 | 261,500 | 2.3 |
| Other Services (Private Only) | 113,100 | 114,800 | 1.5 |
| Government | 422,500 | 419,200 | -0.8 |
| Source: Current Employment Statistics (CES) | |||
The largest percentage growth in the period since the unemployment rate hit 3.8 percent occurred in construction and educational services, while the largest numeric growth was in health care and social assistance. While the data do not show what kinds of jobs were created, these three industries have many well-paying occupations that might incent people to return to the labor market.
The largest percentage decline was in mining and logging. Because that sector is the smallest industry in terms of employment in Minnesota, the numeric decline was only 1,100. While other industries saw small declines, employment generally has been growing.
Labor market indicators are increasingly painting a more positive employment picture. In the past year employment has increased while the duration of unemployment has decreased. Labor force participation has increased and workers appear to have more confidence in the availability of jobs.
Job vacancies in Minnesota support the picture of a strong labor market with extensive job opportunity. Both second and fourth quarter 2015 results showed the most unfilled jobs since 2001, with more than 96,000 vacancies during each of the two quarters.
By fourth quarter 2015, the ratio of job seekers to job vacancies statewide had dropped to 1-to-1, or one unemployed worker for each vacancy. This ratio has fallen from 8.2 unemployed workers for each job vacancy during fourth quarter 2009. Regionally, the Twin Cities now has less than one (0.8) unemployed person for every job vacancy, while Greater Minnesota has 1.2 unemployed people for each job vacancy.
Statewide, health care and social assistance had the most job vacancies, followed by retail trade, accommodation and food service, and manufacturing during fourth quarter 2015 (see Figure 1).
Median wage offers for all job vacancies were up 1.9 percent from a year ago to $13.54 an hour. That increase was driven by higher wage offers for vacancies requiring low skills levels during fourth quarter 2015. The study showed that median wages were up over the year for the very large group of vacancies requiring a high school diploma or less (62 percent of all vacancies in Minnesota) and for those requiring an advanced degree (3 percent of all vacancies). Median wages were down for all other groups (35 percent of all vacancies) (see Table 2). At the same time, the share of vacancies requiring a high school diploma or less increased 11.9 percent over the year while the share requiring post-secondary education increased only 2 percent. Increases in median wage offers at the low end of the wage scale can be attributed partly to increases in Minnesota's minimum wage in 2014 and 2015, as well as a tighter labor market that is forcing employers to compete for workers, particularly in low-wage occupations.
| Median Wage Offers for Minnesota Job Vacancies | |||||
|---|---|---|---|---|---|
| Educational Requirements | Number of Job Vacancies | Median Wage Offer | |||
| Q4 - 2014 | Q4 - 2015 | Change | Q4 - 2014 | Q4 - 2015 | |
| None | 26,251 | 20,309 | -22.6 | $9.93 | $10.00 |
| High School | 28,560 | 41,006 | 43.6 | $11.94 | $12.22 |
| Vocational training | 10,822 | 9,563 | -11.6 | $15.00 | $14.98 |
| Associate Degree | 6,724 | 6,923 | 3.0 | $19.48 | $18.61 |
| Bachelor's Degree | 13,810 | 15,138 | 9.6 | $28.44 | $27.03 |
| Advanced Degree | 2,758 | 3,174 | 15.1 | $31.38 | $42.61 |
| Total | 88,927 | 96,114 | 8.1 | $13.29 | $13.54 |
| Source: DEED Job Vacancy Survey | |||||
The following are some examples of median wage offers for low-wage occupations during fourth quarter 2015:
Minnesota's job growth over the next 10 years will slow as employers struggle to find workers in a tight labor market. Annual average job growth will drop from 30,000 jobs between 2010 and 2015 to an expected 13,000 new jobs on average annually between 2014 and 2024. Most of the projected 130,000 new jobs will be added in the first five years of that 10-year period.
Robust job growth over the last five years was driven partly by unemployed workers moving into jobs. Minnesota's unemployment rate dipped to 3.7 percent in 2015 from a 26-year high of 7.8 percent in 2009. Last year's unemployment rate was tied for the fifth-lowest since 1976, the year that consistent unemployment estimates were first developed.
Without significant increases in labor force participation rates or worker immigration into Minnesota, the state's unemployment rate soon will match and then slip below the boom years of the late 1990s, when unemployment averaged 3 percent between 1997 and 2000. During that period, Minnesota added an average of 53,000 jobs a year. The peak labor force participation rate in 2000 corresponded predictably with baby boomers moving into their 40s and 50s, the ages for peak labor force participation.
The oldest baby boomers (those born in 1946) and the youngest baby boomers (those born in 1964) will be 78 and 60 years old, respectively, in 2024. That means that in 10 years most baby boomers already will be enjoying their retirement years, while the youngest soon will be retiring.
In 2015, labor force participation did increase for the first time since 2000, as the tight labor market drew some discouraged workers back into the workforce. As unemployment continues to fall and the labor market tightens, the labor force participation rate may continue to creep up for a few years before the retirement of the bulk of the baby boomers sends labor force participation rates downward again.
Minnesota's job growth over the next decade will be generated entirely in the private sector, with the expected small increase in state and local government employment offset by a projected downsizing of federal government workers in Minnesota (see Table 3).
| Minnesota Industrial Employment Projections | ||||
|---|---|---|---|---|
| Estimated 2014 | Projected 2024 | 2014-2024 Numeric Change | 2014-2024 Percent Change | |
| Total Employment | 3,007,000 | 3,137,000 | 130,000 | 4.3 |
| Self-Employed | 196,800 | 201,300 | 4,500 | 2.3 |
| Goods-Producing Sector | 449,500 | 443,800 | -5,700 | -1.3 |
| Natural Resources and Mining | 29,900 | 28,400 | -1,500 | -5.0 |
| Construction | 107,600 | 117,900 | 10,300 | 9.6 |
| Manufacturing | 312,000 | 297,500 | -14,500 | -4.6 |
| Private Service-Providing Sector | 1,980,900 | 2,113,400 | 132,500 | 6.7 |
| Trade, Transportation and Utilities | 516,500 | 530,000 | 13,400 | 2.6 |
| Information | 52,500 | 48,900 | -3,700 | -6.9 |
| Financial Activities | 177,400 | 187,700 | 10,300 | 5.8 |
| Professional and Business Services | 353,400 | 372,300 | 19,000 | 5.3 |
| Education and Health Services | 485,800 | 563,500 | 77,600 | 16.0 |
| Leisure and Hospitality | 267,300 | 280,700 | 13,400 | 5.0 |
| Other Services (Except Government) | 128,000 | 130,300 | 2,300 | 1.8 |
| Government | 379,800 | 378,600 | -1,200 | -0.3 |
| Source: Minnesota Employment Projections, 2014 to 2024 | ||||
All private employment expansion will be in the service-providing sector, with the state's goods-producing sector workforce expected to shrink 1.3 percent. Expanded construction employment will be offset by declining manufacturing and natural resources and mining employment over the next 10 years.
Nearly three-fourth of all employment expansion is anticipated to occur in two super sectors: educational and health services (77,600 jobs) and professional and business services (19,000 jobs). Educational and health services jobs will grow the fastest, increasing 16 percent by 2024, or nearly four times faster than the 4.3 percent increase projected for all employment.
Table 4 shows that three of the 22 major occupational groups are expected to lose jobs between 2014 and 2024: farming, fishing and forestry (5 percent decline), production (2 percent decline) and office and administrative support (1 percent decline). Health care support occupations will grow the fastest, with employment expected to jump by 17.6 percent. Personal care and service occupations (21,800 new jobs) and health care practitioners and technical occupations (20,100 new jobs) will add the most jobs over the next decade.
In addition to the 130,000 job openings projected to be created through employment growth over the next 10 years, 697,000 net replacement openings are projected over that period. Even occupations that are expected to shrink over the next 10 years will have net replacement openings. Of 810 occupations, 94 percent are expected to have more job openings created by replacement openings than from employment growth. The need to fill replacement openings will increase through the decade as baby boomers retire.
| Minnesota Occupational Employment Projections | ||||
|---|---|---|---|---|
| Estimated 2014 | Projected 2024 | 2014-2024
Numeric Change |
2014-2024
Percent Change |
|
| Total Employment | 3,007,000 | 3,137,000 | 130,000 | 4.3 |
| Management | 228,500 | 233,600 | 5,100 | 2.2 |
| Business and Financial Operations | 170,500 | 180,000 | 9,600 | 5.6 |
| Computer and Mathematical | 93,500 | 101,300 | 7,800 | 8.3 |
| Architecture and Engineering | 52,300 | 52,600 | 300 | 0.6 |
| Life, Physical and Social Science | 26,000 | 27,300 | 1,400 | 5.0 |
| Community and Social Services | 59,900 | 65,400 | 5,500 | 9.2 |
| Legal | 21,100 | 22,100 | 1,000 | 4.7 |
| Education, Training and Library | 164,200 | 168,200 | 4,000 | 2.4 |
| Arts, Design, Entertainment, Sports and Media | 54,300 | 55,100 | 800 | 1.5 |
| Health Care Practitioners and Technical | 163,600 | 183,800 | 20,100 | 12.3 |
| Health Care Support | 91,500 | 107,600 | 16,100 | 17.6 |
| Protective Service | 47,800 | 49,000 | 1,200 | 2.5 |
| Food Preparation and Serving Related | 231,500 | 243,300 | 11,800 | 5.1 |
| Building and Grounds Cleaning and Maintenance | 99,200 | 103,900 | 4,700 | 4.7 |
| Personal Care and Service | 157,800 | 179,600 | 21,800 | 13.8 |
| Sales and Related | 289,100 | 299,900 | 10,800 | 3.7 |
| Office and Administrative Support | 425,400 | 421,300 | -4,000 | -1.0 |
| Farming, Fishing and Forestry | 16,000 | 15,200 | -800 | -5.0 |
| Construction and Extraction | 111,900 | 120,600 | 8,700 | 7.8 |
| Installation, Maintenance and Repair | 102,900 | 107,500 | 4,600 | 4.5 |
| Production | 223,600 | 219,000 | -4,600 | -2.1 |
| Transportation and Material Moving | 176,500 | 180,600 | 4,200 | 2.3 |
| Source: Minnesota Employment Projections, 2014 to 2024 | ||||
The annual cost of living for an average Minnesota family of three is $45,864. That estimate, from DEED's Cost of Living study, is based on seven cost categories: food, housing, health care, transportation, child care, other necessities and net taxes.
The average annual wage per worker in the state is $48,733, meaning the average family in the state (assuming one working adult in the family) is making 106 percent of the cost of basic needs.
Data show, however, that the average annual wage in Minnesota can differ considerably from one race or ethnic community to another.
The average annual wage for white non-Hispanic workers (the majority population in Minnesota) is $50,200 or 109 percent of the cost of living. But a closer look at just minority populations shows that their average wage is $36,524 or 80 percent of the cost of basic needs.
Breaking out specific populations among minority workers in Minnesota, the highest wage is Asian at $49,028 (107 percent of basic needs), followed by white Hispanic at $34,042 (74 percent), American Indian at $31,171 (68 percent) and black or African American at $30,116 (66 percent).
The ability of people to meet basic family needs through employment income is crucial to the well-being of every community. These figures indicate many families of color are struggling to meet their everyday cost of living in Minnesota.
Although we lead the nation on a number of significant indicators, Minnesota's labor market faces important challenges. We must continue efforts to attract and retain workers if we want to maintain employment growth, fill the growing number of vacancies and continue to have a dynamic economy. An important part of this is removing barriers that many within Minnesota face to fully participating in the labor market. Efforts also must be made to ensure that Minnesota is an attractive destination for individuals to move who are looking to start or continue their careers.
