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Budget would stall slowly churning economic engine

Minnesota lawmakers are putting finishing touches on a conservative-crafted budget that could toss the state back to the brink of recession, further kick the foundation out of housing prices, and speed rural Minnesota's out-migration.

That is a reasonable assessment of budget bills proposed in the Minnesota Legislature's two houses. They could lead to the loss of 5,000 middle-class public employment jobs, with a spillover loss of 30,000 public and private jobs in Minnesota, according to various economic estimates.

If you think Minnesota's labor market can absorb such a shock, consider the progress Minnesota has actually made over the past year. The U.S. Bureau of Labor Statistics (BLS) reported earlier that Minnesota had employees on non-farm payrolls of 2,647,900 in March this year, a gain of 19,600 jobs from March 2010. This gain helped lower Minnesota's unemployment rate to 6.6 percent, down from 7.6 percent in March a year ago.

All those gains would be lost. And nearly that many jobs again would be in jeopardy if something close to the conservative-led Legislature's budget bills were to become law.

This additional downward pressure on the job market and on the state economy would come while approximately 200,000 Minnesotans are currently out of work and looking for employment.

It is still unknown how Governor Dayton will respond to the Legislature's drastic budget actions. Assuming the Legislature is forced to go back to the drawing board to fashion a compromise, any middle ground approach would merely limit the damage forthcoming to the state and local economies by about the amount of gains they've made in the past year of slow economic recovery.

Though dismal, that's the big picture statewide. Actual impacts will differ by regions and communities.

Ramsey County, state government's host, will certainly feel the pinch from wholesale firings and attrition of state, local and public education employees, said Kevin Ristau of the Jobs Now Coalition, a nonprofit and nonpartisan group in St. Paul.

Large areas of rural Minnesota, or Greater Minnesota, appear even more vulnerable to state-imposed job losses, Ristau said.

In those communities, job losses in the dozens may be more detrimental than in larger communities and counties hit by hundreds of job losses, he added.

Ristau is currently assembling employment data for southeast Minnesota counties. Going back five years, to before the 2008-09 Great Recession, openings for part-time jobs have shrunk by 20 percent and openings for full-time jobs have declined 50 percent.

The most recent regional look at job vacancies from the Jobs Now Coalition shows 13,000 unemployed workers competing for 1,800 job openings in northeast Minnesota. This means job seekers outnumber job openings by 7-to-1, the group reported.

More dramatically, less than half of the job openings were full-time positions. That means the ratio between seekers and full-time jobs was actually 16-to-1. If you think this is a permanent jobs problem in the northeast, the jobs promotion group noted that job seekers outnumbered job openings by less than 2-to-1 in the fourth quarter of 2002, meaning job openings fell by 66 percent in eight years.

Given this weak economic base, it is almost impossible to imagine laid off schoolteachers and public servants sliding into comparable private sector jobs. It would almost certainly mean outmigration of people and talents, similar to those experienced by western Minnesota counties in recent decades.

Jobs Now Coalition studies show employment pressures to be a statewide problem. Throughout Greater Minnesota, 44 percent of all jobs -- 460,000 -- pay less than the $13.04 per hour needed to meet basic needs for a family of four, the group found. At the minimum wage of $7.25 per hour, a couple with two children would need to work 144 hours per week to meet federally recognized basic needs.

A metro area couple with two children would need to work 163 hours per week at the minimum wage to meet basic needs. Ristau's findings show that had the minimum wage kept pace with inflation since the 1960s, the minimum wage would be $9.95 per hour, based on BLS calculations.

In Greater Minnesota, 24 percent of all jobs pay less than that per hour, and in the metro counties, 15 percent of all jobs pay less than that.

Job losses would deliver a devastating blow to Minnesota's badly beaten housing industry. They would also slow retail growth.

Our economic recovery is fragile, weighted down by unstable job markets and growing property tax burdens on depressed housing markets. There is still time for the Legislature to come to grips with economic reality; you don't grow the economy and create jobs by turning more people out of work and driving them from their homes. We need a balanced approach to solving the budget deficit.

(Egerstrom is the Minnesota 2020 Economic Development Policy Fellow.)