Transcript But, What About Tomorrow? - 85th Minnesota Legislature

… But, What About
Tomorrow?
Tom Stinson, State Economist
Tom Gillaspy, State Demographer
January 2007
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
Minnesota’s Per Capita Personal
Income Exceeds the U.S. Average
by 8 Percent
• Minnesota ranked 9th in personal income per capita
in 2005- - - In 1960 Minnesota ranked 25th
• Personal income per capita grew at an average
annual rate of 6.6 percent between 1960 and 2005
• Since 1960 per capita personal income has grown
faster in Minnesota than in all but 12 states
Minnesota Ranks Highly in Many
Social/Economic Indicators
• 5th lowest poverty rate
• 2nd percent of 16-64
•
•
•
•
employed
1st percent with health
insurance
1st home ownership
10th median family income in
2005
4th Kids Count 2006
Updated Sept 2006
• 2nd lowest rate of disability
•
•
•
among people age 16-64
4th percent of children in
married couple families
91% with at least high school
degree, ranked 3rd
1st United Health Foundation
ranking of state healthiness
2006 (21% above the national
norm)
Minnesota’s Economy Has Changed
Since the 1960s
% of GSP
Res Based
Mfg Adj
Const
2001
1963
TCU
Trade
Services
Financial
Govt
0%
5%
10%
15%
20%
25%
Not All Minnesotans Enjoy the Same
Level of Prosperity
•
Regional differences exist in income,
education, and health
•
Racial and ethnic minorities also experience
large differences in income, education and
health
•
Many rural areas continue to experience long
term population decline
Minnesota Has 5 Ruralplexes
(And One Metroplex)
RURALPLEX
Northwest Valley
Up North
Central Lakes
Sourthwest Corn Belt
Southeast River Valley
Metroplex
Large Differences Exist Between the
Ruralplex & Metroplex
Ruralplex Metroplex
Per Capita Personal Income 2000
$17,778
$25,373
Population Growth 1980-05
4.1%
45.1%
Percent Minority
6.2%
15.0%
Less Than High School
16.3%
9.6%
Bachelors Degree or More
17.7%
33.0%
Percent of Income From Wage &
Salary
69.2%
80.4%
Below 150% of Poverty
18.6%
12.0%
Average Annual Rate of Growth 1970-2000
Large Differences In Regional
Population Growth Rates
2.0%
1.5%
1.3%
1.0%
1.0%
0.5%
0.2%
0.2%
0.1%
0.0%
-0.5%
-0.6%
-1.0%
Northwest
Valley
Up North
Central
Lakes
Southwest Southeast Metroplex
Corn Belt
River
Valley
Only Modest Differences In Regional Per
Capita Personal Income Growth Rates
Average Annual Percent Growth 1970-00
9
7.5
7.2
7.4
6.7
6.9
7.2
7.2
7.1
6.9
SE
River
NW
Valley
Metro
State
U.S.
6
4.5
3
1.5
0
Lakes
SW
Corn
Up
North
Minnesota’s Current Success Is Due
to Decisions Made 50+ Years Ago
•
Private sector and public sector decisions
established the foundation for growth in
Minnesota’s economy
•
Dealing with challenges brought by the
baby boom was a key to our success
•
•
Wise investments were made
Education has been a key contributor to
the state’s success
We have come a long way.
But what about tomorrow?
Aging Is the Dominant Trend in
Minnesota and the Nation
•
•
It is not normal for a society to age
•
Sharp increase in retirements will begin
in 2008
•
In 2011, the number of 65th birthdays will
increase substantially
Dramatic changes are coming over the
next 4 years
This Decade and Next Will See Dramatic
Differences in Growth in Key Age Groups
0.3%
Prime Working Age (16-64)
1.0%
3.0%
Retirement (60-64)
5.4%
1.3%
Long-Term Care (85+)
2.3%
-0.5%
Higher Education (18-24)
E-12 Education (5-17)
0.1%
2005-10
0.4%
2010-20
-0.2%
-1%
0%
1%
2%
3%
4%
Average Annual Growth Rate
5%
6%
New Entrants to Minnesota’s Work Force
Plateau as Baby Boomers Retire
1,400,000
1,200,000
1,000,000
800,000
18-24
65+
600,000
400,000
200,000
0
1950 1960 1970 1980 1990 2000 2010 2020 2030
Economic Fact of Life #1
Standard of Living depends on output per
resident
Output = Output per Hour * Hours Worked
Economic Fact of Life #1A
If the ratio of workers to residents declines
productivity will need to increase
If it doesn’t, we will not maintain our current
living standard
Minnesota’s Dependency Ratio Will
Begin to Rise Soon
90
76.1
Dependency Ratio
80
69.4
70
57.8
60
50
64.3 64.9 65.4
53.3 54.5 50.7
47.7
66
54.8
47.3
40
30
20
10
Dependency Ratio= Number of children (0-14) plus number of elderly (65+)
Divided by the population 15 to 64 time 100
20
60
20
50
20
40
20
30
20
20
20
10
20
00
19
90
19
80
19
70
19
60
19
50
19
40
0
Minnesota Will See a 30 Percent Jump in
Workers Turning Age 62 Beginning 2008
Worked Within Past 5 years
60,000
50,000
40,000
30,000
20,000
10,000
0
7/05 to
7/06
7/06 to
7/07
7/07 to
7/08
7/08 to
7/09
7/09 to
7/10
Year Turning Age 62
2005 ACS
7/10 to
7/11
7/11 to
7/12
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
Census & 2005 ACS, State Demographer projected 2005-30
-3
0
20
20
-2
0
20
15
-1
5
20
10
-1
0
20
05
-0
5
20
00
-0
0
19
90
-9
0
19
80
-8
0
19
70
-7
0
19
60
-6
0
19
50
-5
0
19
40
19
30
19
20
-4
0
0.0%
-3
0
Average Annual Growth Rate
Minnesota’s Labor Force Growth
Projected to Slow to Historic Lows
Competition for the Future
Workforce Will Increase
14%
13.0%
Percent Change 18-24
12%
10%
8%
6.8%
6%
Mn
US
4.5%
4%
2%
0.7%
0%
-2%
-2.3%
-4%
2000-05
2005-10
-1.6%
2010-15
Census Bureau US Proj, Mn State Demographer Mn Proj
-3.0%
-2.2%
2015-20
Most Future Jobs Are Know-How,
Not Know-What or Know-Why
•
•
•
Transformational – creating products
Transactional – interactions that can be
easily scripted or automated
Tacit – complex interactions requiring high
levels of judgment. Know-How as opposed
to Know-What or Know-Why
– The growth sector of the economy
– 40% of labor market, 70% of jobs created since
1998
Economic Fact of Life #2
Worker’s wages depend on the value of
their marginal product
The amount produced * the value of each
unit produced
Everyone’s talents must be fully used if
we are to continue to be successful
Migration Will Become the Largest
Source of New Workers in Minnesota
Net Labor Force Growth
500,000
Total
400,000
Natural
Partic. Rate
Migration
300,000
200,000
100,000
0
-100,000
2000-10
2010-20
2020-30
Populations of Color Will Be a
Major Source of New Workers
•
K-12 growth in students of color while
white majority students are declining
•
Current education achievement rates
are lower for students of color
Students Of Color Are Increasing While
White Students Are Declining
Change Enrollment 2000-01 to 2005-06
Am Indian
Asian
20000
10000
Hispanic
16,390
Black
White
Total
15,178
4,615
201
0
-10000
-15,341
-20000
-30000
-40000
-50000
-60000
Mn Dept of Education data
-51,725
Minnesota High School Graduation Ratio-Large Differences Exist
100%
87%
90%
84%
81%
5 Yr Ave Rate
80%
70%
60%
62%
57%
53%
50%
40%
30%
20%
10%
0%
American
Indian
Asian
Hispanic
Black
White
Total
1999-00 through 2003-04 graduates. Based on 10th grade enrollment three years earlier.
Younger Minnesota Workers Are Less
Likely To Have Completed High School
4%
Age Group
50-59
5%
40-49
6%
30-39
8%
20-29
0%
2%
4%
6%
Did Not Complete High School
2005 American Community Survey
8%
10%
Economic Fact of Life #3
• Productivity depends on
– The stock of human capital
• Education
• Health status
– The stock of physical capital
– The stock of infrastructure
– Advancements in technology
Minnesota’s Academic R&D
Spending Is Well Below 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
Workforce Development
Will Be Crucial to Minnesota’s
Economic Future
• Number of workers
• Quality of workers
– New entrants
– Incumbent workforce
Minnesota’s Economy Will Grow
Real Per Capita Personal Income Is
Projected to Grow 28 Percent by 2016
$ per capita
45,000
40,000
35,000
30,000
25,000
20,000
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Minnesota Households Will Earn
More and Be Wealthier in 2016
•
Real, per capita disposable income projected
to grow to $35,199 – by $7500 -- by 2016
•
Household wealth per capita forecast to grow
60+ percent by 2014
•
•
•
Inflation adjusted for
Medical cost increases already included
Minnesota could do better
Budget Priorities Will Change: More
65+ Than School Age by 2020
1,400,000
1,200,000
1,000,000
18-24
65+
5-17
800,000
600,000
400,000
200,000
0
1950 1960 1970 1980 1990 2000 2010 2020 2030
Census counts & State Demographer projection
Aging of Society Will Impact Private
and Public Spending
•
•
Health care spending will increase
•
Older voters often more fiscally
conservative
•
State tax base will be affected as baby
boom reaches retirement age
Shift in government priorities to issues
of aging and health
CBO Expects Medicaid Spending to
Double by 2014, State Tax Revenues Will
Not Keep Up
Index, 2003 = 100
250
200
150
100
50
Medicaid Cost
Revenue
0
2003
2005
2007
2009
2011
2013
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
$45,000
$1,091
$559
$559 -$1,459
-72%
$896 $1,987 -$2,695
-58%
And, In Conclusion
•
•
•
•
•
•
Minnesota has been very successful
We are in a period of rapid and critical
change
Demographic forces will shape our future
for the next quarter century
Slower labor force growth heightens
importance of productivity growth
Demands for public services will reflect
trends in age structure
These economic and demographic forces
will shift budget priorities
How will Minnesotans 50
years from now view our
generation’s stewardship?