economy demographics 072508

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Minnesota’s Economics & Demographics Looking To 2030 & Looking To 2030 & Beyond Beyond Tom Stinson, State Economist Tom Gillaspy, State Demographer July 2008

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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.

TRANSCRIPT

Page 1: Economy Demographics 072508

Minnesota’s Economics & Demographics

Looking To 2030 & BeyondLooking To 2030 & Beyond

Tom Stinson, State Economist

Tom Gillaspy, State Demographer

July 2008

Page 2: Economy Demographics 072508

Minnesota Has Been Very Successful

(Especially For A Cold Weather State at the End of the Road)

• Our economic growth rate has exceeded the national average

• Our population growth rate leads the frost belt

• We rank with the leaders on many social and economic indicators

• Education has been a key contributor to the state’s success

Page 3: Economy Demographics 072508

Minnesota’s Economy Has Changed Since the 1960s

0% 5% 10% 15% 20% 25%

Govt

Financial

Services

Trade

TCU

Const

Mfg Adj

Res Based

2001 1963

% of GSP

Page 4: Economy Demographics 072508

Minnesota’s Per Capita Personal Income Exceeds the U.S. Average

by 6 Percent

• Minnesota ranked 14th in personal income per capita in 2006- - - In 1960 Minnesota ranked 25th

• Personal income per capita grew at an average annual rate of 6.8 percent between 1960 and 2005

• Since 1960 per capita personal income has grown faster in Minnesota than in most states outside the Southeast

Page 5: Economy Demographics 072508

Minnesota’s GDP Growth Rate Exceeded the US Average, 1967-

2007

Page 6: Economy Demographics 072508

Minnesota Private Industry Has Generally Matched National Growth

Index Of Private Industry GDP

0

20

40

60

80

100

120

140

160

180

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1997

=10

0

US

Mn

BEA. Before 1997 based on SIC. Since 1997 NAICS

Page 7: Economy Demographics 072508

2007 Minnesota Per Capita GDP Is 8.8% Above The National Average

BEA

Page 8: Economy Demographics 072508

Payroll Employment Growth1972-2007

Page 9: Economy Demographics 072508

Payroll Employment in Minnesota Has Grown Faster than the US Average

Page 10: Economy Demographics 072508

Manufacturing Employment1972-2000

Page 11: Economy Demographics 072508

Minnesota’s Unemployment Rate Has Been Well Below the US Average

Page 12: Economy Demographics 072508

Minnesota Per Capita Income Has Grown Faster Than The Nation’s

85%

90%

95%

100%

105%

110%

1930 1940 1950 1960 1970 1980 1990 2000 2007p

Per Capita Income

Per Capita DisposableIncome

Page 13: Economy Demographics 072508

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

Page 14: Economy Demographics 072508

Minnesota Ranks Highly in Many Social/Economic Indicators

• 2nd percent of 16-64 employed (76.9%)

• 2nd cost of living adjusted per capita income (OK DOC)

• 8th lowest poverty rate

• 1st percent with health insurance 2004-06 ave

• 9th median family income in 2006

• 2nd Kids Count 2007

• 4th most livable state (Morgan Quinto Press)

• 4th lowest rate of disability among people age 16-64

• 1st with at least high school degree (90.7%)

• 12th with at least a bachelor’s degree

• 1st home ownership

• 2nd United Health Foundation ranking of state healthiness 2007

Updated July 2008

Page 15: Economy Demographics 072508

Past PerformanceDoes Not EnsureFuture Results

Page 16: Economy Demographics 072508

From 2004 to 2007 Minnesota Underperformed the US Averages

• Personal income growthUS 6.2% MN 4.4%

• Per capita personal income growth US 16.6% MN 13.5%

• GDP growthUS 8.4% MN 4.8%

• GDP per capita growthUS 5.4% MN 2.6%

Page 17: Economy Demographics 072508

Minnesota Payroll Employment Has Struggled Since Early 2006

Page 18: Economy Demographics 072508

Minnesota’s Unemployment Rate Now Is Similar to the US Average

Page 19: Economy Demographics 072508

US Manufacturing Employment Fell Faster Than MN, 2000-2007

Page 20: Economy Demographics 072508

Minnesota Ranked 30th in Employment Growth, 2000-2007

Page 21: Economy Demographics 072508

Minnesota Ranked 24th in Real Per Capita GDP Growth, 2000-2007

Page 22: Economy Demographics 072508

Real Per Capita GDP Growth Compared to Neighboring States

2000-2007

Page 23: Economy Demographics 072508

Real Per Capita GDP Growth Compared to Midwestern States

2000-2007

Page 24: Economy Demographics 072508

Real Per Capita GDP Compared to High Tech States 2000-2007

Page 25: Economy Demographics 072508
Page 26: Economy Demographics 072508
Page 27: Economy Demographics 072508

But… What AboutBut… What About Tomorrow?Tomorrow?

Page 28: Economy Demographics 072508

Economic Fact of Life #1First Principle of Economic Growth

Standard of Living depends on output per resident

Output = Output per Hour * Hours Worked

Page 29: Economy Demographics 072508

Four Mega-Forces Will Shape Minnesota’s Economy

• Globalization

• Technology

• Energy prices

• Demography

Page 30: Economy Demographics 072508

The Three Big Demographic Trends

• Growth and suburbanization

• Increased diversity

• Aging

Page 31: Economy Demographics 072508

By 2020 Minnesota will add about ¾ By 2020 Minnesota will add about ¾ Million People & 1/3 Million HouseholdsMillion People & 1/3 Million Households

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

1970 1980 1990 2000 2007 2010 2020 2030

State Demographer projection revised 2007

Page 32: Economy Demographics 072508

State: 518,000

-8,779 to -1 0 to 999 1,000 to 4,999 5,000 to 65,348

Projected population change2005 to 2015

Suburban & Exurban Growth Coupled Suburban & Exurban Growth Coupled With Rural DeclinesWith Rural Declines

Central Cities Have StabilizedCentral Cities Have Stabilized

Page 33: Economy Demographics 072508

Upper Midwest Becoming More Diverse But Still Less Than The Nation

4.1%

11.4%

6.3%

5.8%

8.8%

8.7%

24.4%

9.0%

23.9%

14.1%

9.6%

13.4%

14.3%

33.6%

0% 10% 20% 30% 40%

Iowa

Hennepin Cnty

Minnesota

North Dakota

South Dakota

Wisconsin

United States

Percent Population of Color

2006

1990

Note: Population except white alone, not Hispanic, 2006 Census Bureau estimate. Hennepin in 2005

Page 34: Economy Demographics 072508

In 2006, Minnesota’s Foreign Born Workforce Was 240,000 or 8% Of The

Total Workforce

0 10000 20000 30000 40000 50000 60000

Less Than HighSchool

High School

Some College

Bachelor's Degree

Advanced Degree

2006 ACS

Page 35: Economy Demographics 072508

From 2010 to 2020, Minnesota Will See Large Increases Age 50s and 60s

20,15036,190

47,3305,050

-30,680-9,980

47,95061,920

-2,680-63,650

-42,31054,240

102,960112,540

91,37041,400

8,44016,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84

85+

Source: Minnesota State Demographic CenterNumbers are rounded

Page 36: Economy Demographics 072508

The Number of Workers Turning Age 62 Will Jump 30 Percent in 2008

0

10,000

20,000

30,000

40,000

50,000

60,000

7/05 to7/06

7/06 to7/07

7/07 to7/08

7/08 to7/09

7/09 to7/10

7/10 to7/11

7/11 to7/12

Year Turning Age 62

Wo

rke

d W

ith

in P

as

t 5

ye

ars

2005 ACS

Page 37: Economy Demographics 072508

Childless Couples And 1-person Households Projected To Grow

-24,500

29,000

-7,200

127,700

6,400

77,800

24,000

Married with Kids

Single Parents

Married No Kids,under 55

Married No Kids, 55+

Living Alone Under55

Living Alone, 55+

Other Households

Projected change, 2005 to 2015

Minnesota State Demographic Center projections

Page 38: Economy Demographics 072508

Competition For The Future Workforce Will Increase

6.8%

4.5%

-1.6%-2.2%

13.0%

-1.2%

-3.5% -3.0%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

2000-05 2005-10 2010-15 2015-20

Per

cen

t C

han

ge

18-2

4 US

Mn

Census Bureau US Proj, Mn State Demographer revised 2007

Page 39: Economy Demographics 072508

Labor Force Growth Is About To Slow Sharply

1.52%

1.12%

0.75%

0.43%

0.10% 0.13%

0.27%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1990-2000

2005-10 2010-15 2015-20 2020-25 2025-30 2030-35

Ave

An

nu

al C

han

ge

Page 40: Economy Demographics 072508

Migration Increases in Importance as Labor Force Growth Slows

-100,000

0

100,000

200,000

300,000

400,000

500,000

2000-10 2010-20 2020-30

Total Natural Part Rate Migration

Net Labor Force Growth

State Demographer projection revised 2007

Page 41: Economy Demographics 072508

The Three Most Important Factors For Future Economic Success

1. Productivity

2. Productivity

3.Productivity

Page 42: Economy Demographics 072508

Economic Fact of Life #2

• Productivity depends on

– The stock of physical capital

– The stock of human capital

• Education

• Health status

– The stock of infrastructure

– Advancements in technology

Page 43: Economy Demographics 072508

Academic Research Is a Key Factor in State Economic Growth

• “the lags between R&D and economic outcomes are quite long (at least years, and more likely decades)

• “The state … may do well for a while by drawing upon its existing stock of knowledge capital

• “How the state of Minnesota will fare in the future … will crucially depend on its recent and future investment in R&D

*Long Gone Lake Wobegone, Pardey, Dehmer and Beddow, 2007

Page 44: Economy Demographics 072508

R&D Spending Slowed in the Early 90sWe 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

Page 45: Economy Demographics 072508
Page 46: Economy Demographics 072508

Education Is The Key To Productivity

Minnesota High School Graduation Ratio

57%

85%

60% 62%

89%85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AmericanIndian

Asian Hispanic Black White Total

2 Y

r A

ve R

ate

2004-05 through 2005-06 graduates. Based on 10th grade enrollment three years earlier.

Page 47: Economy Demographics 072508

Managing State Finances Will Be Challenging

Page 48: Economy Demographics 072508

Minnesota’s Population Will ChangeThe Three Largest Cost Drivers In The State Budget

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1950 1960 1970 1980 1990 2000 2010 2020 2030

18-24

65+

5-17

Census counts & State Demographer projection, revised 2007

Page 49: Economy Demographics 072508

Health Care Spending Jumps After 55U.S. Health Care Spending By Age, 2004

$1,855$1,074 $1,445

$2,165$2,747

$3,496

$6,694

$9,017$9,914

$3,571

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

<55-

14

15-2

4

25-3

4

35-4

4

45-5

4

55-6

4

65-7

475

+

Avera

ge

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.

Page 50: Economy Demographics 072508

State Taxes Paid by a Married Couple Before and After Retirement

Income Income Tax

Sales Tax

Total Change Pct

Working

$35,000 $1,236 $782 $2,018

$65,000 $3,387 $1,295 $4,682

Retired @ 70 %

$25,000 $0 $559 $559 -$1,459 -72%

$45,000 $1,091 $896 $1,987 -$2,695 -58%

Page 51: Economy Demographics 072508

State/Local Government’s Share of Personal Income Has Declined

16.3%15.9%

17.4%

15.4%

17.9%

10%

15%

20%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Calendar Year

Price of Government

Mn Dept of Finance

Page 52: Economy Demographics 072508

Estimating the Volatility of a System of Taxes

• Markowitz’s modern portfolio theory used as a guide:– The expected growth rate in revenues is the

weighted sum of the individual growth rates– Portfolio volatility is the square root of the

weighted sum of the variances and covariances of the individual components

Page 53: Economy Demographics 072508

Portfolio Theory Suggests Using a Tax System that Minimizes Volatility for a Given

Growth Rate

• Given the trend growth rate, variance and covariance of each major tax, an Efficiency Frontier Line (EFL) can be estimated

• The EFL shows combinations of taxes that provide the lowest volatility for each growth rate

• Points below the frontier are suboptimal.

• The EFL is determined using quadratic programming to minimize state tax revenue volatility, σ2

T, given growth rates gT

Page 54: Economy Demographics 072508
Page 55: Economy Demographics 072508

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%

Actual vs. Efficient MN One-Year Tax-Mix Given the Current Trend Growth Rate

Page 56: Economy Demographics 072508

Summary

• Minnesota has been very successful

• We are in a period of rapid and critical change

• What we do today will shape our future for the next quarter century

• Productivity increases will be the key to further growth throughout Minnesota