Will the Real Greater Minnesota Please Stand Up?

In this article from our March-April 2014 edition of Fiscal Focus, we find that wage trends suggest the economic story of rural Minnesota is a lot more upbeat than the stark headlines and warnings suggest.

“Minnesota’s Small Towns: A Tour of a Crisis in the Making” Star Tribune 3/8/2014
“Rural Revival Bucks Dire Forecasts for Many Rural Small Towns” Star Tribune 11/24/13
“Rural Minnesota is Falling Behind and Losing Clout” Star Tribune 12/3/13
“Jobs Find a Home on the Prairie” Star Tribune 12/26/13

If you grew up in the 70’s, you can almost hear “To Tell the Truth” host Garry Moore pose his iconic question in light of these headlines. There are certainly divergent perspectives on what life and the economy are like outside of the state’s seven-county metro and regional centers. Are Minnesota’s small cities and counties “withering and dying on the vine” as described in one of the pieces above – rapidly depopulating, hollowed-out economic shells of their former selves in desperate need of state attention? Or are they beacons of lifestyle affordability whose primary challenges are “finding enough employees” and “housing, housing, housing” reflecting “remarkable increases in economic activity in many smaller communities” and offering “stiff reproof to the myths of rural decline and ghost towns” (also quotes from the articles above)? Or are both true depending on exactly where you look? And if so, why?

With this in mind, it seemed like a good time to revisit and update an analysis we did about ten years ago examining government and private sector wages and wage share by county in Minnesota. A lot has happened since then, and the changes over the last decade-plus may offer some insights into the questions above. We requested Quarterly Census of Employment and Wages data for 2000 and 2011 from Minnesota’s Department of Employment and Economic Development (DEED), which provides a virtual census of 97% of the state’s non-farm employment. The QCEW wage data includes gross wages and salaries, paid leave including vacation pay, tips and other gratuities, bonuses, severance pay, stock options, some sick and disability payments, and the cash value of meals and lodging.

We are unable to include seven counties in our analysis. The QCEW definition of “local governments” includes tribal government employment and wages. Since we specifically wanted to analyze government employment excluding tribal activity, DEED at our request reclassified tribal government-associated wage and employment as private sector where possible. However, in seven counties with tribally owned casinos such reclassification would violate Minnesota’s data privacy laws and so DEED was unable to provide information.

Public vs. Private Sector Growth

While private sector activity is typically considered the engine of economic activity, it is important to recognize the influence and impact government at all levels – federal, state, and local – has on local economies. In Minnesota, government represented about 10% of the state’s GDP in 2012, the most recent year for which data is available. Although being too dependent on government employment and wages could be construed as economic weakness and vulnerability – especially if paid for by own source revenues – a strong public sector presence can play an important role in maintaining stable local economies. According to the QCEW data, government wages grew from 13.3% to 13.5% of the 80-county total between 2000 and 2011, driven by slightly faster growth (35.6%) when compared to private sector wages (33.6%). Government share of total wages in 2011 ranged from a low of 8.2% in Olmsted County to a high of 45.5% in Red Lake County.

The accompanying table highlights how government wages relative to total county wage bases have changed since the turn of the century. Over this period, government share of the wage base grew in 42 counties and fell in the other 38 for which we have data. Counties where government share of the wage base grew tended to be located in central Minnesota, southeastern Minnesota, and the Twin Cities metro area.

Table 1

Changes in the Implicit Price Deflator for State and Local Governments and Major Components: 1999-2012

 Govt. Share of All WagesRank (of 80)Govt. Share of All WagesRank (of 80)Govt. Share of All WagesRank (of 80)Govt. Share of All WagesRank (of 80)
 Aitkin27.2% 1526.9%14McLeod13.3%7011.1%76
 Anoka12.9%7114.4%67 Marshall31.2%827.4%12
 Benton10.8%7610.6%77Mille Lacs18.2%5821.1%38
 Big Stone38.5%234.9%3Morrison24.8%2425.0%20
 Blue Earth 18.7%5617.0%59Mower16.2%6415.1%66
 Brown 12.2%73 13.3%70Murray27.5%1424.3%22
 Carlton 22.5%3628.5%8Nicollet19.9%4825.0%19
 Carver 10.7%7712.4%73Nobles20.6%4215.3%65
 Cass 32.3%428.0%10Norman31.8%725.4%17
 Chippewa 19.4%5322.9%29Olmsted8.7%808.2%80
 Chisago 20.3%4619.8%50Otter Tail21.1%3918.8%54
 Clay 30.5%1028.5%9Pipestone22.7%3326.3%16
 Clearwater 30.6%926.6%15Polk26.9%1723.7%26
 Cook 32.0%632.8%4Pope23.7%2822.8%30
 Cottonwood 22.5%3519.4%51Ramsey16.6%6216.8%61
 Crow Wing 21.1%4021.1%37Red Lake29.6%1245.5%1
 Dakota 11.8%7412.3%74Renville19.5%5220.3%46
 Dodge 20.5%4322.7%31Rice18.7%5520.7%43
 Fillmore21.2%3822.4%32St. Louis21.1%4118.4%56
 Lac Qui Parle36.3%329.9%7Watonwan17.6%5921.6%36
 Lake of the Woods25.7%1924.5%21Winona15.6%6516.2%63
 Le Sueur 14.7%67 16.5%62Wright17.5%6019.0%53
 Lincoln27.0%16 16.9%60 Statewide (80 Counties) 13.3% 13.% 
47 20.4%44     
Note: Data not available for Itasca, Mahnomen, Pennington, Pine, Redwood, Scott, and Yellow Medicine Counties.
Source: QCEW data from Minnesota Department of Employment and Economic Development, calculations by MCFE

The award for the greatest structural transformation of the local economy goes to Jackson County, which was one of the case studies in the Star Tribune reporting on booming rural economies. While government wages grew at a relatively modest 8% from 2000- 2011, private sector wages grew a remarkable 106.2% over that same period – 46 times greater than government wages on a dollar basis ($1.6 million vs. $74.6 million). Some small portion of this differential may be attributable to a privatization of public sector health care-related employment, which would convert those positions to private sector. Nevertheless, these outcomes have propelled the county from having an above-average share of its wage base coming from government employers to having one of the smallest such shares in the state.

The Population Factor

Population changes, of course, can significantly skew trends in wage growth. Understanding the importance of this, we calculated per capita private and public sector wage growth for each county, identified the median values for the 80 counties, and then plotted each county based on its relative performance to the 80-county median. This allows us to put counties in one of four performance “sectors”:

• High per capita private and public sector wage growth
• High per capita private sector and low per capita public sector wage growth
• Low per capita private sector and high per capita public sector wage growth
• Low per capita private and public sector wage growth

As the accompanying map shows, the counties with the highest per capita private sector wage growth over the past decade are largely concentrated in the western part of the state. Many of them also feature above-average per capita public sector wage growth in spite of the budget challenges and state aid policies of the last decade. Many of these counties are undoubtedly benefiting from the secondary and tertiary impacts of a very robust farm economy that was largely insulated from the Great Recession. In contrast, the Twin Cities metro has been the state’s wage income laggard on a per capita basis, featuring the greatest concentration of below-average public and private sector growth.

Figure 1

County Per Capita Public Sector and Private Sector Wage Growth 2000-2011 vs 80-County Medians

What This Tells Us

Given the location-specific circumstances each of these counties has faced, it’s dangerous to over-generalize about these findings. But we do offer two conclusions.

First, as two of the articles cited earlier suggest, it’s dodgy to paint rural Minnesota and these local economies with too broad a brush based on conventional thinking about demographics. Of the 35 counties in our analysis with population declines since 2000, 23 of them (or 66%) have realized above-average per capita private sector wage growth since then. 43% of these depopulating counties also experienced above-average per capita public sector wage growth. Since Social Security and other non-wage income is not included in the per capita numbers, but counts of retirees and the elderly are, these per capita results are all the more impressive. Many counties may be aging rapidly and losing people but those that stick around – at least to date – generally appear to be doing quite well. Whether this trend continues into the future remains to be seen.

At the same time, four depopulating counties had below-average public and private sector per capita wage growth and are likely the best case studies for the starker portrayal of rural economic futures captured by other headlines.

Second, local government benchmarking would appear to have considerable potential value. Based on our discussion with local government officials over the past several years, the concept of benchmarking local cost structures and service delivery methods faces great resistance. The claim is that each local government has unique circumstances and expectations making direct comparisons with other governments pointless at best and misleading at worst.

Yet these results suggest that areas facing very similar demographic and economic challenges are having very different amounts of success addressing them. At a minimum, this suggests at least the opportunity to examine best practices in both traditional economic development activity and the provision and delivery of public services. This is not just a rural Minnesota issue. As a pilot project in our property tax transparency initiative, we found Dakota County demonstrated considerable restraint in its levy increases over the past several years. But the county has also been recognized for local government redesign accomplishments, such as having city-county collaboration in consolidating 911 public safety dispatch services. Without making too much of a few pieces of a much bigger puzzle, this does at least beg the question of whether it’s a coincidence that Dakota County is a lone top performer in the metro area in per capita wage growth over the last decade.