How Does Minnesota’s “Brain Waste” Compare?

The state’s February forecast revealed once again what employers around the state know only too well: Minnesota has a major workforce shortage problem.   MMB reports state labor market remains one of the tightest in the nation, featuring the fourth lowest unemployment rate but the sixth highest labor force participation rate among states resulting in little workforce slack.   There are two open positions for each unemployed individual.  Employment growth going forward is further constrained by an aging workforce, and lower levels of net immigration into the state.

However, behind these numbers is another potential issue for concern: worker underemployment, or failing to tap the full potential of human capital.   Providing information and analysis of this issue is one focus of the Migration Policy Institute (MPI), a Washington DC-based, non-partisan research organization which “seeks to improve immigration and integration policies through authoritative research and analysis and the development of new ideas to address complex policy questions.”   While their primary interest is rooted in underemployment and skill underutilization among foreign born college educated individuals who have immigrated to the United States, their data analysis also offers insights into domestic born underemployment and the differential rates of underemployment among foreign born and domestic workers. 

The MPI tracks what it calls “brain waste” – four-year, college-educated persons 25 years or older who are either unemployed or employed in unskilled jobs, i.e., jobs that require only moderate on-the-job training or less, such as construction laborers, taxi drivers, file clerks, or nannies.  (“Brain waste” does not include employment in associate and technical degree employment) The MPI has issued several reports on brain waste trends, contributing factors, economic effects, and policy implications.  In 2016, the MPI estimated federal, state, and local governments combined were losing $10 billion in taxes as a result of forgone earnings from underemployment.  

State estimates of brain waste are based on information obtained from the U.S. Bureau of Census American Community Survey (ACS) as well as ACS microdata provided by the Institute for Social Research and Data Innovation located here at the University of Minnesota.  As the accompanying table shows, Minnesota is a better performer than the national average with respect to both domestic-born and foreign-born workers and in the difference between foreign and domestic performance placing the state in the bottom 15 nationally in all categories.  In calendar year 2019, Minnesota had approximately 176,800 college educated individuals unemployed or underemployed in low skilled jobs representing 17.6% of the state’s total civilian college-educated workforce.  An important caveat is that the latest information is for calendar year 2019 so table figures do not reflect post Covid labor market realities.   However, MMB was already reporting “robust demand for workers and low unemployment define Minnesota’s current, tight labor market” in the November 2019 economic forecast.

The reported rates of brain waste in combination with Minnesota’s extremely tight labor market is both bit confusing and disconcerting.  It suggests that not only do we face chronic workforce challenges but we are also not able to maximize the potential of the workforce we have.   It also suggests some of the workforce shortages in especially hard-hit sectors like food and hospitality may be even worse than they appear now because they are being staffed by overqualified workers.

Some, perhaps much, of the explanation can be linked to mismatches between supply of college majors and market demand for those majors.   Nationally, law and public policy, fine arts, and communications/journalism majors represented some of the highest shares of underemployed workers while, unsurprisingly, STEM and health majors represented the lowest levels.   Job transitions, family developments, and related unique household circumstances may be other contributing factors.

There are other possible explanations that are policy oriented.   At the top of the list are licensing and regulatory barriers to entry that limit opportunities for gainful employment for college-educated immigrant and U.S.-born workers alike.  MPI reports the number of occupations that require licenses or certifications has increased from 5 percent in 1950 to more than 25 percent in 2015.   Moreover, the process of obtaining licenses has become more complex and difficult to navigate.  On a macro level it could also suggest that the current Minnesota business climate is failing to provide sufficient employment opportunities to utilize the supply that is available.

Minnesota lawmakers are preparing to invest hundreds of millions of dollars in a wide variety of workforce training and economic development related initiatives and public private partnerships to address workforce constraints and needs across industries.   Such initiatives are important but shouldn’t distract the state from also looking at policies which create a regulatory and economic environment for new and existing firms to grow and thrive.