Economy Demographics 072508


Published on

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.

Published in: Business, Sports
1 Comment
  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • Economy Demographics 072508

    1. 1. Minnesota’s Economics & Demographics Looking To 2030 & Beyond Tom Stinson, State Economist Tom Gillaspy, State Demographer July 2008
    2. 2. Minnesota Has Been Very Successful (Especially For A Cold Weather State at the End of the Road) <ul><li>Our economic growth rate has exceeded the national average </li></ul><ul><li>Our population growth rate leads the frost belt </li></ul><ul><li>We rank with the leaders on many social and economic indicators </li></ul><ul><li>Education has been a key contributor to the state’s success </li></ul>
    3. 3. Minnesota’s Economy Has Changed Since the 1960s
    4. 4. Minnesota’s Per Capita Personal Income Exceeds the U.S. Average by 6 Percent <ul><li>Minnesota ranked 14 th in personal income per capita in 2006- - - In 1960 Minnesota ranked 25 th </li></ul><ul><li>Personal income per capita grew at an average annual rate of 6.8 percent between 1960 and 2005 </li></ul><ul><li>Since 1960 per capita personal income has grown faster in Minnesota than in most states outside the Southeast </li></ul>
    5. 5. Minnesota’s GDP Growth Rate Exceeded the US Average, 1967-2007
    6. 6. Minnesota Private Industry Has Generally Matched National Growth Index Of Private Industry GDP BEA. Before 1997 based on SIC. Since 1997 NAICS
    7. 7. 2007 Minnesota Per Capita GDP Is 8.8% Above The National Average BEA
    8. 8. Payroll Employment Growth 1972-2007
    9. 9. Payroll Employment in Minnesota Has Grown Faster than the US Average
    10. 10. Manufacturing Employment 1972-2000
    11. 11. Minnesota’s Unemployment Rate Has Been Well Below the US Average
    12. 12. Minnesota Per Capita Income Has Grown Faster Than The Nation’s
    13. 13. 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
    14. 14. Minnesota Ranks Highly in Many Social/Economic Indicators <ul><li>2 nd percent of 16-64 employed (76.9%) </li></ul><ul><li>2 nd cost of living adjusted per capita income (OK DOC) </li></ul><ul><li>8th lowest poverty rate </li></ul><ul><li>1 st percent with health insurance 2004-06 ave </li></ul><ul><li>9 th median family income in 2006 </li></ul><ul><li>2 nd Kids Count 2007 </li></ul><ul><li>4 th most livable state (Morgan Quinto Press) </li></ul><ul><li>4 th lowest rate of disability among people age 16-64 </li></ul><ul><li>1 st with at least high school degree (90.7%) </li></ul><ul><li>12 th with at least a bachelor’s degree </li></ul><ul><li>1 st home ownership </li></ul><ul><li>2 nd United Health Foundation ranking of state healthiness 2007 </li></ul>Updated July 2008
    15. 15. Past Performance Does Not Ensure Future Results
    16. 16. From 2004 to 2007 Minnesota Underperformed the US Averages <ul><li>Personal income growth </li></ul><ul><ul><li>US 6.2% MN 4.4% </li></ul></ul><ul><li>Per capita personal income growth </li></ul><ul><ul><ul><li>US 16.6% MN 13.5% </li></ul></ul></ul><ul><li>GDP growth </li></ul><ul><ul><ul><li>US 8.4% MN 4.8% </li></ul></ul></ul><ul><li>GDP per capita growth </li></ul><ul><ul><li>US 5.4% MN 2.6% </li></ul></ul>
    17. 17. Minnesota Payroll Employment Has Struggled Since Early 2006
    18. 18. Minnesota’s Unemployment Rate Now Is Similar to the US Average
    19. 19. US Manufacturing Employment Fell Faster Than MN, 2000-2007
    20. 20. Minnesota Ranked 30 th in Employment Growth, 2000-2007
    21. 21. Minnesota Ranked 24 th in Real Per Capita GDP Growth, 2000-2007
    22. 22. Real Per Capita GDP Growth Compared to Neighboring States 2000-2007
    23. 23. Real Per Capita GDP Growth Compared to Midwestern States 2000-2007
    24. 24. Real Per Capita GDP Compared to High Tech States 2000-2007
    25. 27. But… What About Tomorrow?
    26. 28. Economic Fact of Life #1 First Principle of Economic Growth <ul><li>Standard of Living depends on output per resident </li></ul><ul><li>Output = Output per Hour * Hours Worked </li></ul>
    27. 29. Four Mega-Forces Will Shape Minnesota’s Economy <ul><li>Globalization </li></ul><ul><li>Technology </li></ul><ul><li>Energy prices </li></ul><ul><li>Demography </li></ul>
    28. 30. The Three Big Demographic Trends <ul><li>Growth and suburbanization </li></ul><ul><li>Increased diversity </li></ul><ul><li>Aging </li></ul>
    29. 31. By 2020 Minnesota will add about ¾ Million People & 1/3 Million Households State Demographer projection revised 2007
    30. 32. Suburban & Exurban Growth Coupled With Rural Declines Central Cities Have Stabilized
    31. 33. Upper Midwest Becoming More Diverse But Still Less Than The Nation Note: Population except white alone, not Hispanic, 2006 Census Bureau estimate. Hennepin in 2005
    32. 34. In 2006, Minnesota’s Foreign Born Workforce Was 240,000 or 8% Of The Total Workforce 2006 ACS
    33. 35. From 2010 to 2020, Minnesota Will See Large Increases Age 50s and 60s Source: Minnesota State Demographic Center Numbers are rounded
    34. 36. The Number of Workers Turning Age 62 Will Jump 30 Percent in 2008 2005 ACS
    35. 37. Childless Couples And 1-person Households Projected To Grow Minnesota State Demographic Center projections
    36. 38. Competition For The Future Workforce Will Increase Census Bureau US Proj, Mn State Demographer revised 2007
    37. 39. Labor Force Growth Is About To Slow Sharply
    38. 40. Migration Increases in Importance as Labor Force Growth Slows State Demographer projection revised 2007
    39. 41. The Three Most Important Factors For Future Economic Success <ul><li>Productivity </li></ul><ul><li>Productivity </li></ul><ul><li>Productivity </li></ul>
    40. 42. Economic Fact of Life #2 <ul><li>Productivity depends on </li></ul><ul><ul><li>The stock of physical capital </li></ul></ul><ul><ul><li>The stock of human capital </li></ul></ul><ul><ul><ul><li>Education </li></ul></ul></ul><ul><ul><ul><li>Health status </li></ul></ul></ul><ul><ul><li>The stock of infrastructure </li></ul></ul><ul><ul><li>Advancements in technology </li></ul></ul>
    41. 43. Academic Research Is a Key Factor in State Economic Growth <ul><li>“ the lags between R&D and economic outcomes are quite long (at least years, and more likely decades) </li></ul><ul><li>“ The state … may do well for a while by drawing upon its existing stock of knowledge capital </li></ul><ul><li>“ How the state of Minnesota will fare in the future … will crucially depend on its recent and future investment in R&D </li></ul><ul><li>* Long Gone Lake Wobegone , Pardey, Dehmer and Beddow, 2007 </li></ul>
    42. 44. R&D Spending Slowed in the Early 90s We 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
    43. 46. Education Is The Key To Productivity Minnesota High School Graduation Ratio 2004-05 through 2005-06 graduates. Based on 10 th grade enrollment three years earlier.
    44. 47. Managing State Finances Will Be Challenging
    45. 48. Minnesota’s Population Will Change The Three Largest Cost Drivers In The State Budget Census counts & State Demographer projection, revised 2007
    46. 49. Health Care Spending Jumps After 55 U.S. Health Care Spending By Age, 2004 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.
    47. 50. State Taxes Paid by a Married Couple Before and After Retirement -58% -$2,695 $1,987 $896 $1,091 $45,000 -72% -$1,459 $559 $559 $0 $25,000 Retired @ 70 % $4,682 $1,295 $3,387 $65,000 $2,018 $782 $1,236 $35,000 Working Pct Change Total Sales Tax Income Tax Income
    48. 51. State/Local Government’s Share of Personal Income Has Declined Mn Dept of Finance
    49. 52. Estimating the Volatility of a System of Taxes <ul><li>Markowitz’s modern portfolio theory used as a guide: </li></ul><ul><ul><li>The expected growth rate in revenues is the weighted sum of the individual growth rates </li></ul></ul><ul><ul><li>Portfolio volatility is the square root of the weighted sum of the variances and covariances of the individual components </li></ul></ul>
    50. 53. Portfolio Theory Suggests Using a Tax System that Minimizes Volatility for a Given Growth Rate <ul><li>Given the trend growth rate, variance and covariance of each major tax, an Efficiency Frontier Line (EFL) can be estimated </li></ul><ul><li>The EFL shows combinations of taxes that provide the lowest volatility for each growth rate </li></ul><ul><li>Points below the frontier are suboptimal . </li></ul><ul><li>The EFL is determined using quadratic programming to minimize state tax revenue volatility, σ 2 T , given growth rates g T </li></ul>
    51. 55. Actual vs. Efficient MN One-Year Tax-Mix Given the Current Trend Growth Rate 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%
    52. 56. Summary <ul><li>Minnesota has been very successful </li></ul><ul><li>We are in a period of rapid and critical change </li></ul><ul><li>What we do today will shape our future for the next quarter century </li></ul><ul><li>Productivity increases will be the key to further growth throughout Minnesota </li></ul>