Episode 05: Minnesota's economy 101

Christy Kallevig: Welcome to the Vital Connection On Air, a podcast brought to you by University of Minnesota Extension Center for Community vitality that explores the trends and topics important to communities and leaders throughout Minnesota. My name is Christy Kallevig and I'm an Extension educator with the Center for Community Vitality. Today, I am joined by Laura Kalambokidis. Laura is an Extension Economist and part of our community economics team within the Center for Community Vitality and is also a professor of Applied Economics at the University of Minnesota.

In addition to these roles, Laura is also the Minnesota State Economist.

Christy Kallevig: Welcome to the Vital Connections On Air.

Laura Kalambokidis: Thank you.

Christy Kallevig: That is a lot of roles and hats that you wear, Laura. Let's start off by learning a little bit more about the work that you do within Extension at the University.

Laura Kalambokidis: Sure, that's a lot of hats, but they all fit pretty well together. With Extension, I am an Extension Economist. We have a number of them here in the Department of Applied Economics, and my main Extension audience has been with communities and state and local governments. So my research and teaching field is public sector economics, the economics of government, the economics of the public sector. My Extension work has been in public engagement with the public sector.

Christy Kallevig: And what has been some of the most recent research that you've done when looking at that specific sector?

Laura Kalambokidis: I've done some research on looking at tax incentives for business development I do within public sector economics. My main area of research is tax policy. I'm always looking at state tax policy, and as the state economist, this is how these things are closely integrated as the state economist. My main role is to forecast the state's economy and then forecast tax revenues for the state.

Christy Kallevig: Let's talk about that a little bit more. As the state economist, you started this position in 2013, correct?

Laura Kalambokidis: Yes.

Christy Kallevig: In that role, like you said, you forecast the budget and look at the trends. What do you all have to take into account when you are doing that and how do you act in that role as the state economist?

Laura Kalambokidis: Yeah. So what do we have to take into account? So in Minnesota--the state's economy is a diverse economy, meaning that our employment is distributed across a wide range of industries. If you look at the picture of Minnesota's economy and how employment is distributed, it looks a lot like the U.S. economy. We're about as diverse as the U.S. economy, and that means that Minnesota's economy is pretty closely tied to the U.S. So in order to forecast Minnesota's economy, we need to look at global and national trends in economics. So we're looking at U.S. forecasts for growth, for wages, for profits, and then we take that information about global trends and the U.S. forecast and we add to it Minnesota specific information. So information about industries that are important to Minnesota and information about wages in Minnesota, profits in Minnesota, [and] employment here.

Christy Kallevig: Is it unusual for a state to be that closely representative of the national economy?

Laura Kalambokidis: It's a good thing. I don't know how many other states look like our profile, but I can say that it's a helpful thing for the state because it means that Minnesota doesn't have a lot of state-specific economic risk. Think about in contrast to a state that is very much dependent on a single industry. So the energy industry, for instance, or on tourism, or on construction. Those states might grow really fast when that industry is growing really fast, but then they struggle when that industry struggles. In a state like Minnesota, when one industry is struggling and laying off workers, releasing workers, another industry may be able to pick them up. And so having that diversity gives the state resilience, so that we can we catch back up after downturns more quickly than some other states.

Christy Kallevig: Is it because of that resilience, as you said, that we were able to not see as big of issues during the recent recession as some other states did?

Laura Kalambokidis: We did lose a lot of jobs in the recession and there were certainly were parts of the state that really struggled here. That it was a significant recession, right? So that was a big deal. What happened in Minnesota, yes, that resilience allowed us to recover the jobs lost in the recession about eight months ahead of the United States. We recovered a little faster than many other states. It also means because that recovery was a little quicker, it means that Minnesota is well [ahead of] the U.S. recovery from the Great Recession recovery and expansion period that follows the recession. It's a long and a mature recovery. We're into the ninth year now. For Minnesota, I think it's a little more mature. So I think we're a little further along that expansion path than the country as a whole. And then some other states.

Christy Kallevig: So where are we at today with our economy? What does our Minnesota economy look like right now?

Laura Kalambokidis: Yeah. We are, as I said, this recovery period for the country is mature. We've been in this expansion in recovery mode for going on more than eight years now. But Minnesota, despite the fact that that recovery has been long, it continues to add jobs at a pretty steady clip. We have been adding jobs steadily throughout the recovery. That's a good thing. We're doing quite well. Well, as I said, we're further along that expansion path, but we're still adding employment in the state. We have low unemployment. We're one of the states with the lowest unemployment rate. We have low unemployment and a high demand for labor across the state, and so that gives us a tight labor market. That's the theme that I apply to the state or what I observe at this point is that tight labor market. We're continuing to add jobs, but it's getting harder for employers to find people to fill those jobs.

Christy Kallevig: And can you talk a little bit about what you mean by a tight labor market? Some people think that's just a buzz phrase, you hear about it in the news, but there's actual meaning behind that. Can you explain that a little bit?

Laura Kalambokidis: Yeah. What I mean by tight labor market is the market where the demand for workers is high and the supply of workers is tightening. And so if you look at, for instance, the number of unemployed workers statewide and the number of job openings statewide, the ratio on those things are just about at parity. That's just about one-to-one in the states. We have just about as many unemployed job seekers across the state as we have jobs open across the state. That's what I mean by a tight labor market state statewide, and that doesn't that doesn't mean that things are the same everywhere. So that's across the state as a whole. There may be differences across the state and across industries. But as I talk to business groups and communities, I'm hearing more and more consensus, a commonality across the state that labor supply is tightening and demand for workers is high, and the supply of workers is slowing down.

Christy Kallevig: And so that means that those that are out there looking for jobs have the flexibility to be a bit more choosy then, correct?

Laura Kalambokidis: Yeah, that's right, that's exactly what happened. In this environment, especially if you look at it statewide, people who are looking for jobs have more choice, and people who are IN jobs have more choice, they can quit a job and get something better. People are who are looking for jobs can demand higher wages. That's something that you would expect to have happened when the market is tight, it's sort of a seller's market. So those people looking for jobs are the ones selling their labor. They can demand a little higher price. So it's it is very good market for those people who are looking for jobs, provided they're willing to be flexible and maybe move to a different industry or move to a different part of the state, or consider different scheduling arrangements. And then on the other side, the people who are hiring the businesses and organizations that are hiring, they're having to be more creative about regarding finding those workers that are looking, and retaining the workers that they have. And so they're sort digging deeper into that pile of applications, and they're looking at populations they might not have looked at before. They're looking at people who live in other parts of the state. And thinking about how can we move them here? There's creativity going on on both sides.

Christy Kallevig: And so one of the things that we have talk about in previous podcasts, is really this idea that people no longer have to live right where they work. And that exactly as you said, employers are getting creative about it. Is that making the employers more engaged with their employees and working harder to strengthen the communities around them, would you say? Or do you think that it's just doing what they need to do right now to get somebody to fill a spot?

Laura Kalambokidis: You know, I think it's both. I think that you know necessity is the mother of invention. So the employers who used to have lots of applicants for every job opening, and they have fewer now, they're thinking, "I've got to do something right now to fill a spot, otherwise that tight labor market is going to lead to them limiting their ability to expand their business." And so they're doing things quickly in order to fill those positions. But here's my hope. And what might happen as a result of this, is that as employers are looking to pools of workers they might have overlooked before. So they're looking to people who don't necessarily live right in the community where the business is. Or so they're thinking about older workers, and how can we keep older workers in their positions. Or thinking about people who have been staying at home taking care of kids, and how can we offer them flexible work schedules? How can we do job sharing? How can we work with transportation? Maybe we're looking at disabled workers or previously incarcerated workers. People that they might not have looked at before. So they're doing that because they have to right now in order to fill positions. I'm hoping that creating all of those channels and creating all of that engagement with organizations that are working with those people looking for jobs, people building houses and creating transportation ideas, I'm hoping that that stays part of our culture in Minnesota's economy, and we continue to have an economy where we have drawn everybody into the game.

Christy Kallevig: Everything you said leads us to think about things that matter other than wage, but wage still matters. People still need to pay the bills. How does wages across the states impact employers' ability to recruit, to retain, but also within this tight labor market? You know, you hear a lot about some communities looking at setting a 15 dollar minimum wage or just kind of exploring some of those types of things. What is the economic impact for these employers and communities that are really trying to figure out where that sweet spot is for wages to recruit people to their business and community?

Laura Kalambokidis: Yeah, I think you're right about looking for a sweet spot, but there are differentials across industries and across the state. So for instance when the labor market is tight and you should expect wages to be pushed up just straight up because labor is scarce and so are the people who are selling it. People who are looking who were available to work. They have a right to ask for a little more money, and that might force an employer to raise wages for the people that they do have. Another thing that happens is that when a business has trouble filling a position, they might think of replacing some of the workers with some kind of equipment or adding some equipment into the mix. Some technology, a new method for doing things so that the people they do have can do as much or more with the smaller number of people, so that increases the productivity of all those workers who are working with that equipment and that improves their ability to demand higher wages. So that's what you should expect to happen. And that's all fine for the businesses as long as prices can go up, too, so that they can retain their margins while they're paying more for wages. So as long as productivity and wages are going up together and prices can go up as well, then that can be okay for the businesses. But if you're a business where you don't really control your price. So for instance you're a business that is where the price for your good is global, like you're selling an agricultural commodity, for instance. Or you're sending your products outside the state.

And the price the customers are somewhere else, then there might be a differential and there might be some challenges there for those businesses where they feel like they have to pay more to their workers in order to attract people in, but they aren't able to raise their price because it's being set somewhere else.

Christy Kallevig: So how do you see this playing out with small businesses?

Laura Kalambokidis: So some small businesses are going to be able to do just fine, because if you're a local service business and you have to pay more for labor, you can also charge your community. Workers are making a little bit more money too. So you can charge more for your service. And that's just growth for everybody. I think that there could be some challenges for businesses that, as I said, where they're dependent on a customer who is in a different environment where the prices are still low. And so they can't raise the price of their goods, and then they're going to have to think hard about some ways to enhance the productivity of the workers they do have. I think some larger businesses are able to look to pools of workers that might be somewhere else and then think about busing them in, or think about how maybe we can build some housing and attract people to smaller businesses that aren't going to be able to do that on their own.

They may need to think about joining together with other businesses in their community working with organizations in their community to address some of these issues to try to attract workers into the community because they probably can't make those kinds of changes alone.

Christy Kallevig: And so when you look across the state, do you see pockets of the state that are kind of struggling with this labor market more than others?

Laura Kalambokidis: It's less across pockets across the state and more certain industries. So construction is one of the industries that have lots of job vacancies there. We have home prices have risen following the Great Recession. We have a tight housing market for homes in the Twin Cities and also in some of our regional centers And so that leads to demand for new homes and construction. But there aren't enough construction workers. So construction is one of the areas that those companies are getting really creative about finding people, and also thinking about things like credentialing. Like maybe, we don't need someone with a lot of experience, maybe we will train them in house. Healthcare is another area. This is something that is both an industry issue and a geographic issue. So in the parts of the state where the population is aging, and we don't have a lot of influx of young people. We have older people, and those that want to stay in their communities, and they want to stay in the area and get their healthcare where they live. Some of those health care providers are having a hard time finding workers to do some of the one on one personal care for folks in those communities. So that is that when I say low unemployment and high demand for workers — the health care area is feeling that throughout the state but particularly in less dense rural areas.

Christy Kallevig: So looking at the unemployment numbers — like you said, we're sitting at low unemployment. Is there different groups — either looking at new immigrant groups or minority populations or age groups — that tend to be found in the unemployment data more than others?

Laura Kalambokidis: Sure. So we do have a low unemployment rate in the State of Minnesota. We look at that headline unemployment rate, and we know that that masks, or can mask, important differences between groups. If you look at minority populations, their unemployment rates are higher than the overall unemployment rate for the state of Minnesota. The Black or African-American unemployment rate is, I think, three times as high as the white unemployment rate. The Hispanic unemployment rate is higher than the white unemployment rate in Minnesota. The American Indian unemployment rate is higher. So those are populations. Now all of those unemployment rates are lower than they were during the recession, and they've all trended down, and so that's that's positive. But when I say employers are getting creative about finding those workers that are out there and available to work. If they're smart, they're going to be looking to those pockets of workers that we have. And so they're looking into those communities and so if those communities are not living in their area, they're figuring out a way to attract them.

Christy Kallevig: And that's great. I agree with you; I hope that that continues. When we think about our labor force and either busing them in, or finding different pockets, there's also just that that mobility aspect that now we can work from our homes, [which] is an option that that wasn't there even for some people even 10 years ago — based upon Internet access. How is this new access to technology impacting Minnesota's economy?

Laura Kalambokidis: Yes. So that is creating flexibility again. Necessity is the mother of invention. When you need workers, and they're not showing up at your doorstep you get creative about, "Okay, well maybe I can set up a telecommuting or telework system. Maybe some of this stuff can be done from afar." Now it's not the case that every community has perfect access to that. So it's important to bridge that digital divide and make sure that in areas that aren't well served with Telecom, that we get some better served with Telecom, so that these employer matches can be made. I think technology is playing some important roles in — as I said getting everybody into the game, and keeping everybody in the employment game. Because this is not an environment where we can afford to have workers on the sidelines — like we don't have a deep bench in the labor market Minnesota — we need everyone. Everyone active and participating. And so think about disabled workers, that an employer might have thought, "Gosh, I don't know. I'm not sure what disabled workers can offer to me." But organizations that work with disabled workers are helping employers see that with technology, and with a new perspective that they can bring disabled workers into their companies. Then think about one of the reasons that labor supply or labor force growth is slow in Minnesota. Well the main reason that it is slow in Minnesota, is because the population is aging and that big baby boom population is moving into retirement. So using technology to create flexible work spaces and flexible work plans so that you can retain some of those people who might retire. Think you know, what maybe I can attract them to work part-time? They can work from the cabin, and work from the boat — you know go in between snowmobiling. You know they can do some work, and people as I said who are caring for others, who are caring for kids, or caring for parents, caring for disabled family members — maybe technology can help bring them into the workforce too.

Christy Kallevig: When we started our conversation, you talked about [how] Minnesota's economy is globally connected. And I have some slides of yours that talk about the number of headquarters that are located here in Minnesota, and I understand correctly that we have a really high number of business headquarters right here in Minnesota?

Laura Kalambokidis: Yes yes. If you look at headquarters per capita. So for the size of the state and the population in the state we do, yes.

Christy Kallevig: So does that mean that just because their headquarters are here, it does not necessarily mean that their manufacturing centers or that the bulk of their businesses here? How does that impact Minnesota?

Laura Kalambokidis: So there are a number — as I said we have a diverse economy and there are a number of different sectors that are important to the state. I'll leave some out if I list them all. But let's talk about that corporate headquarters sector. So that's a sector. And what's exciting and good about that sector is that those tend to be well-paying jobs that require a lot of training and education. These are management professionals, technical professionals. They're safe jobs. Physically safe jobs and well paying — and there are synergies among the different corporate headquarters. So not only do we have a large number of corporate headquarters in Minnesota, but what industries those corporate headquarters represent is diverse. So it's retail, its food processing, its medical technology, its finance — and people move among them, which is a very helpful thing for an economy, because if you think about attracting workers into the state. So imagine yourself as a corporate recruiter and you're trying to recruit talent from outside the state or outside the country to come into Minnesota. Many people are part of a two earner couple, and so when you're trying to recruit someone who's part of a two earner couple, you can say look we have this diverse economy with all of these nice professional interesting professional jobs — your partner can probably find a job too. Even if you wouldn't say this is as a recruiter, but even if this job I'm recruiting you for doesn't work out, there's probably something else for you here, because it's a diverse center. So that's [what's] good about those headquarters jobs. Another thing is that those corporate headquarters — most of them — many or most, I'm not exactly sure, are homegrown right so they started in Minnesota, and they grew into the Fortune 500.

Those companies have deep roots here and they are very important for our civic engagement and our civic life. So they're part of philanthropy, and they're sponsoring the arts, and they're sponsoring the natural resources, and they're creating positive energy that in the nonprofit philanthropic sector that is also very important here. Then in terms of — yes not all of those corporate headquarters that do manufacturing have all of their manufacturing here — some of them do. But we do have a strong presence of manufacturing in Minnesota. When I said that the diversity of the economy looks a lot like the U.S., we're actually a little bit more over represented in manufacturing than the U.S. as a whole. Which surprises some people — they don't think of Minnesota as a manufacturing state, but we are.

And what's very valuable about those jobs they also tend to be well paying — they tend to require some good technical skills — people can move across them. But those industries — they sell stuff outside of the state and outside of the country. And so they are bringing money into the state from the rest of the world. And so that's valuable for the well-being of the State of Minnesota and for growing the State of Minnesota.

Christy Kallevig: Right. I hadn't thought of viewing those corporate headquarters as a sector. I think that's really interesting. I'm always surprised and I would love it if you could share with us what maybe the top five sectors of Minnesota's economy are?

Laura Kalambokidis: The sector that employs the largest number of people is education and health care in Minnesota. So the way the Bureau of Labor Statistics puts this data together, they put private education in with healthcare. So that doesn't mean it's not public education K–12. It's not the University of Minnesota. It's for profit and private universities, stuck in there with healthcare That's the largest employment sector in the state, and most of that — about 85 percent of that — is health care. So you can think of Minnesota as a healthcare state, because that's where lots of those jobs are. Another large employer by the number of people working there is the professional and business services area. So that includes that corporate headquarters group. So people who work for corporate headquarters are in that group and so are people doing other professional and technical work.

Christy Kallevig: But we're no longer necessarily the agriculture state? That is not our leading economic sector.

Laura Kalambokidis: The numbers that I was looking at is just number of people working, and that those numbers were actually non-farm payroll. So non-farm workers. But even if you look at farm workers, they're not going to be the largest numbers of workers, because as we know, having studied agriculture is that you need a lot of work people now to produce agricultural output. So if you're just talking about commodity production in the State of Minnesota it's not the huge numbers of people that we have, for instance, working in the hospitals and nursing homes which is all very labor intensive and in schools and in law offices and those kinds of things. But you get a different picture if you think about the importance of agriculture in the state that we do production agriculture, so we're producing commodities, and then we are we also have a large food processing sector. So you know I said that Minnesota more of a manufacturing state than you might think? Well a big part of that is food manufacturing. So food processing is called manufacturing, which people don't think of. They think of manufacturing as being steel and iron and technology. But food is also manufactured here. So while we may not have huge numbers of people working on farms, we do have lots of people working in those industries that are connected to the farms. Another important thing about both the farms themselves that produce commodities and the food and agricultural products sectors that are connected to it is that almost all of that stuff, almost all those products, go outside of the state and outside of the country. So as I said, they're drawing money and drawing value back into the state. So, no farming does not dominate Minnesota's economy, but it's a key part of the economy, because it's one of those sectors that exports and brings money in. That also means that it's vulnerable to changes in the global economy. So you know it's a trade off. Those sectors that export are important to us, but they're also vulnerable when global growth slows down. Another aspect of agriculture. Remember I said that the corporate headquarters sector, which is a sector in the employment data — a big part of that is, of course, food processing and agricultural agribusiness. And so those pieces are important in that corporate headquarters sector, and they're tied to our agricultural production.

Christy Kallevig: I just think it's so interesting when I am out visiting with different groups and talk about county assets and I'll often ask them to list the major employers or business sectors within their county. You know, they always list agriculture as number one, and are so surprised when it's healthcare, or it might be government. I think that there's this perception that we're still very agriculture, but we like you said, we have a diverse economy.

Laura Kalambokidis: I said that that's a valuable thing — one of the state's greatest economic assets is the diverse economic base. Another of our great assets, as a bit of a digression, is our strong workforce. We have a well-educated workforce and very high labor force participation. So that's another asset for us. But in terms of having a diverse state economy that diversity is possible to do because we're looking at the state as a whole. It's harder to do the smaller region you look at. So the regions within the state — some of them are still pretty diverse. As you folks know, doing the analysis of regional and community economies. But some of them are dependent on a particular industry — some of them are still more dependent on agriculture, and of course, Northeastern Minnesota is dependent on mining. And there are parts that are dependent on tourism, and so I think it's hard. Every community wants to diversify their base to reduce those ups and downs. You know following the price of iron ore, or the price of corn — and it's valuable for communities to think about how they can diversify their employment base. But I think it's also useful for us to think about all of those pieces as part of our big diverse economy and that we're all in this together in this state. And so we need agriculture — we need mining — and we need tourism — and we need manufacturing — we need those corporate headquarters — and we need the technology, and we can't have it all in one place. So we want to think about the state as a whole and the contributions that each part of the state makes.

Christy Kallevig: This brings us to the end of the first portion of my visit with Extension economist Laura Kalambokidis. Joining me for the next episode. When you can hear more of my conversation with Laura, and we will discuss some workforce challenges that are facing Minnesota. Both of these episodes will lead us to a deeper exploration of workforce issues in our state. We will have podcasts focused on housing, childcare, our immigrant workforce, and also stories about what communities are doing to address the needs of employers and employees across Minnesota. We hope that you enjoy it. Make sure to visit the Center for Community Vitality's website to learn more about what is happening in communities at extension.umn.edu/community. You can also learn more about today's topic in our leadership in civic engagement alumni blog. Follow us on Facebook and Twitter to stay up to date on your research and resources for communities and those who lead them. My name is Christy Kallevig. Thank you for joining me for this episode of vital connections.