Per Capita Income: Wisconsin vs. Minnesota

From Davey, “Twinned Cities Now Following Different Paths,” NY Times today:

“It’s staggering, really, like night and day,” said Lawrence R. Jacobs, a political scientist at the University of Minnesota. “You’ve got two states with the same history, the same culture, the same people — it’s kind of like they’re cousins. And now they’re looking across the border and seeing one world, then seeing something else entirely on the other side.”


Indeed, economic performance in Wisconsin and Minnesota have diverged since 2011, as documented here and here. This is true even after adjusting for population growth.


wiminpercapita.jpg

Figure 1: Log per capita Gross State Product in Wisconsin (blue), and in Minnesota (red), in Ch.2005$, rescaled to 2011=0. Vertical dashed line at 2011. Data for 2013 is based on Philadelphia Fed coincident indicators, first 11 months. Pre-1997 data in Ch.1997$ is spliced to post-1997 data. Source: BEA, FRED, Philadelphia Fed, Census, and author’s calculations.

Real per capita income in Wisconsin has lagged Minnesota a cumulative 2.2% (log terms) since 2011. Clearly, other factors affect growth rates besides government policies. However, the two states are roughly comparable in size — MN was 10% larger than WI in 2011. WI export exposure is 8.7% vs. 7.4% for MN that year. In fact for the two years ending 2012, Minnesota’s Wisconsin’s real exports grew an average of 3.9% vs. Minnesota’s 1.0% — so Wisconsin had a leg up. And yet Wisconsin growth since 2011 has lagged.


More on the Minnesota-Wisconsin comparison here.


h/t dilbert dogbert for alerting me to the article.

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29 thoughts on “Per Capita Income: Wisconsin vs. Minnesota

  1. AS

    Professor Chinn,
    Would you share the export numbers for Wisconsin and Minnesota and the source? Looking at the sources below, I cannot tie into your growth numbers. Also, do you mean: Minnesota’s real exports grew an average of 3.9% vs. Minnesota’s 1.0% (or vs. Wisconsin’s 1.0%)?
    I assume that I have the incorrect sources to tie into your growth numbers.
    http://www.census.gov/foreign-trade/statistics/state/data/wi.html
    http://www.census.gov/foreign-trade/statistics/state/data/mn.html
    Thanks.

  2. jonathan

    One thing that stuck out in the NYT article was that people are more mobile than businesses. So if that holds, there should be a relatively short term effect.
    That led me to think about how the change in emphasis – lower pay for teachers (something going in NC as well, for example) – leads to the ones who can leave doing that. This diminishes future productive capacity. But at the same time, some business will be attracted by lower taxes. I’m going through this because the ideology draws a bunch of conclusions from these bare points but I have trouble seeing what actually happens next.
    Texas, for example, has been able to invest in education because of oil & gas money. Take that away and do you have a cheapening economy with lower paid workers who are less educated working at lower wage jobs?
    Again, my point is the ideology makes all this very clear but the actual workings are incredibly complicated and the outcomes murky.

  3. Menzie Chinn

    AS: Those are correct numbers, but there is a typo (now corrected); in addition, I was using average growth rates 2010-12, not the one year (2011-12) rates on the websites you provided. So it’s 4% for WI, 1% for MN real exports.

    Note, I didn’t pay the subscription for the time series, so I deflated the state nominal export series (from here) by the export deflator for goods for US exports.

    jonathan: I concur it’s hard to figure out the net effect. Labor is probably more mobile that capital within the US, so labor might move to avoid the higher taxes in MN. On the other hand, if the spending afforded by higher taxes provides the inputs (higher education) and amenities desired by high tech workers, for instance, then one could see labor migrating to Minnesota rather than moving to a low tax location.

  4. Winstongator

    Mr. Fulton in the times article represents both capital and labor. He probably won’t move his business because of the capital, but where does he live? Article doesn’t say. Is he moving from MN to WI?
    Really if people (executives that Business owners are worried about recruiting) are considering relocating to MN, are taxes really what would give them pause? Sub-zero temps, OK, high taxes, unacceptable. I know MN and WI climates are the same but business owners would be recruiting nationwide, not just moving across the border.

  5. Ricardo

    Wisconsin has had 40,752 sign up for the Democrat nationalized healthcare plan. Minnesota has only had 19,420 sign up.

  6. g

    Despite all the propaganda, taxes are just one on many variables affecting economic actors decisions.
    Hmm..but is about the only one you hear of in the media.

  7. JBH

    Past is prelude to future. To change the future it’s necessary to identify the roots of economic growth and take action there. Action would be tilling the soil of the private sector, the source of wealth and job creation, and planting and nourishing new seeds there. In the Beacon Hill Institute State Competitiveness rankings, from 2001 to 2012 Minnesota climbed from 9th to 3rd while Wisconsin remained 18th. Technology was the big differentiating variable. Site Selection’s Governor Cup finds the number of new facilities and/or expansions in 2012 in MN to be 107, with WI just 43. In 2001, there were 446 in MN and 35 in WI. This was a tipoff to the trends of the two graphs. MN caught up to WI by 2004, and has moved above WI as of today. Kauffman Foundation entrepreneurial index: MN flat from 1999-2001 to 2009-2011 at 0.22%; while WI saw its lead dwindle over time from 0.28% to 0.24%. Something is going on.

    Information Technology and Innovation Foundation’s New Economy rankings: MN in 1999=14th rising to 13th in 2012; WI in 1999 below national average at 32nd and by 2012 still just 31st. New Economy firms are the leading edge of the future. As such, a disparity of this many points between the two states is evidence that the gap in per capita income will keep widening unless something is done to change the fertility of the soil. Same foundation’s 2012 rankings on high-wage traded services: MN 4th in nation, WI 25th. Better to look at the high-wage sector, which lifts the rest up by its bootstraps, than to look in all the wrong places like the NYT article does. As of Summer 2011, Live Science reports that the American Institute of Physics’s Science and Engineering readiness index, which focuses on how well schools are educating students in physics and calculus, finds MN 2nd in the nation, with WI a respectable 14th but still trailing.

    My humble recommendation for WI is to tell each and every incoming college student to take all the math they can. And to work every problem in the book whether assigned or not. Math is at the base of the pyramid of future economic growth. And since shallow understanding of early concepts (the number line, arithmetic, fractions) quickly translates into level by level inability to comprehend higher-order concepts like calculus and beyond to the mathematics of string theory, students who do not do this early on will simply wash into soft majors that relegate them to lower lifetime earnings.

    From the National Assessment of Educational Progress, 8th grade math scores in 2011 were: MN=294, WI=288, national average=282. Though WI is above national average, MN is nearly a standard deviation above WI!

    No state governor can turn its economy around overnight. Perhaps not even ever. As a state’s economy is rooted in its educational system. And even deeper in its truly-hard-to-change social fabric.

  8. JBH

    About what difference it makes, Robert Frost long ago distilled this to its essence:

    Two roads diverged in a wood, and I—

    I took the one less traveled by,

    And that has made all the difference.

  9. Michael Cain

    “Despite all the propaganda, taxes are just one on many variables affecting economic actors decisions…. but is about the only one you hear of in the media.”
    This. When I worked for the legislative budget committee in my state, I had the opportunity to spend a bunch of time with the people in the governor’s office of economic development. According to them, taxes were WAY down on the list of things companies interested in relocating here asked about. Above taxes? Educated workforce, transportation, communication, quality of schools and public universities, assorted quality of life issues.
    Granted, the governor’s office spent a lot more time with companies that would bring in jobs that required high levels of education/skill and paid well. They were uninterested to the point of near-rudeness with firms interested in creating large numbers of minimum-wage jobs.

  10. Ed Hanson

    JBH
    I find it interesting the rise of good things in Minnesota you record happen during and as a result of the Pawlenty era. He by all accounts was an excellent administrator. While Wisconsin’s lack of progress occurred mostly during the time of Governor Doyle. Perhaps that is a clue to what the “Something is going on.”
    The question, of course, is what the future holds because of the “two paths?” The Times article just touches on the difficult decisions people and businesses have to make in a changing policy environment.
    I will again point out the major changes (paths) in both states began in January 2013 with both Governors putting in their signature tax policies. Menzie seems to insist on continuing using the 2011 year which does have some value, however a second chart normalized to 2013 will tell a different and more relevant story.

  11. randomworker

    Why do I bother with this? Anyway, about MN health plan enrollments as of 1/2/2014:

    ST. PAUL, Minn.—The latest enrollment figures shared today by MNsure show that 67,805 Minnesotans have successfully enrolled in new health insurance plans through MNsure as of December 31, 2013. This total represents a jump of more than 14,600 in the last four days of December.
    As of December 31, enrollment in Qualified Health Plans, or private plans, jumped to 25,860. Enrollment in MinnesotaCare grew to 15,997, and enrollment in Medical Assistance to 25,948. The number of accounts created by January 1 grew to 113,443.

    I have lived in MN for about 30 years now. There has always been competition between the states in the area. For a long time it was “move your plastic injection molding business to low tax Sioux Falls, SD! The cost of living is so low your workers can survive on minimum wage!” But through it all we have managed to keep going.
    I will be sad to leave here later this year. But the dreadful freedomless socialist hellhole of the Pacific Northwest calls. Out of the frying pan into the fire, as it were. /eyeroll

  12. randomworker

    Patrick! Yes, income tax free Washington! Though if you saw the property taxes you might think having a bit of income tax might not be a bad thing. And it’s not exactly a bastion of Tea Party Conservatism.
    I’ve had good luck. This randomworker has worked for a paycheck for many years, saved his money, invested, and is ready for some fishing and hiking. MN was an excellent place for a career, family, and education. I would stay but I have the wanderlust.
    Thanks for asking!

  13. dilbert dogbert

    randomworker: ‘But the dreadful freedomless socialist hellhole of the Pacific Northwest calls. Out of the frying pan into the fire, as it were. /eyeroll’
    But but but! The Rain!!! Come down to Calipornikateya! We have abolished rain.

  14. Menzie Chinn

    randomworker: As one who hails from Washington state, congratulations. It’s a land where diversity is tolerated, politicians are not working overtime to restrict choice and slash indiscriminately government spending in order to cut taxes for millionaires. In addition, the state has implemented the ACA, and is a leader in enrollment. And economically, it is doing quite well. Washington state has grown 7.8% since 2011 (cumulative), in contrast to Wisconsin’s 3.5% (so much for ideological beliefs in crushing unions to spur growth).

  15. Dennis

    One comment about the Pawlenty administration from a life time Minnesota resident. Pawlenty was a Norquist no new tax pledge Governor. It was 8 years of new user fees (don’t call them taxes), and shifts in government accounts (pulling forward future school funding commitments and draining the tobacco settlement funds). Pawlenty was always robbing Peter to pay Paul, and finally Dayton raised some taxes to put school funding back on a reasonable and consistent basis.
    We know good public education is the key to attracting people and growing businesses in a frozen wasteland. The kids from Lake Woebegon can’t do it all on their own.

  16. Ricardo

    The Mercatus Center at George Mason University has given us some interesting maps.
    Notice Minnesota and Wisconsin on the maps. Those indicators that relay on the investment of past administrations give Minnesota the edge: cash solvency 35 to 43; long-run solvency 23 to 38. But those indicators that represent the current administrations of the two states fall heavily in favor of Wisconsin: budget solvency 4 to 30; service level solvency 35 to 40; fiscal condition 17 to 35.
    Just for the record the past administration of Minnesota was led by Tim Pawlenty, Republican, and the past administration in Wisconsin was led by Jim Doyle, Democrat.

  17. Bruce Hall

    No, seriously Menzie. From ’03-’04 to present, the graph is a big whoop-de-doo as far as difference.
    The variations appear to be little more than noise.

  18. randomworker

    Thank you Ricardo! But as it turns out I have been continuously employed since I was 14! Oh wait, I was unemployed for a week and a half back in 1987. But I appreciate the sentiment all the same.

  19. randomworker

    And thank you Menzie. All that is why we chose Washington. That and the mountains.
    Dilbert, I do agree CA remains our greatest state in so many regards and I intend to visit often, as we have family near SF. But I am part vampire and I need to avoid the sun!

  20. Ricardo

    randomworker,
    Sorry, I misinterpreted your pseudonym. Does it mean you have moved from job to job?

  21. randomworker

    Ricardo,
    Well, actually I will need to change my moniker at some point when I retire later this year. Cute you thought it meant that I randomly work at random times, and, presumably, rely on handouts the rest of the time.
    No, the idea behind the name was that I am just one random worker amongst tens of millions of such random workers who toil day after day in obscurity, and that my opinion counts for about as much as any of them!
    Enough about me…I shall return to lurking and learning.
    Regards.

  22. baffling

    random,
    i guess if somebody views the world as makers and takers, your name would imply a taker :) for the record, i did think of you as a worker amongst millions. guess because i am also a random worker :) but when you retire, will you become a moocher in the eyes of some?

  23. Hans

    Despite the continuous threads of comparing the Land of Lakes vs Cheeseville, there is for piratical reasons, very little difference between these two Socshevik states.
    I am within three years or less of retiring and plan to leave Maoisota as quickly as possible..
    Our state mottoe: where nothing is allowed.

  24. Menzie Chinn

    Hans: Excellent. I look forward to more piratical reasoning from you. Just for you, I will step up the frequency of posts on the Wisconsin and Minnesota economies — you’re very welcome!

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