Monday, December 2, 2013

Minnesota created more jobs because Scott Walker created less demand

Simple economic theory explains why Minnesota is miles ahead of Wisconsin on job creation

Job numbers from BLS, First quarter 2013 QCEW
Job creation is spurred by one simple concept: demand. A job will be created when it’s necessary to have, when doing so is beneficial to the person who owns or runs a business.

Demand itself is driven by a strong consumer class. When people are able to purchase a particular good, the demand for that good increases. Production needs to go up to keep up with that demand. When the need for production goes up, the need for labor rises, and with that (and the capital created from the purchases of goods) a job can be created.

Some have argued that tax cuts for businesses will help create jobs. On a small level, this can help: small businesses that have enough demand for a product can use these tax breaks to create work if they lack capital. But on their own, tax cuts for corporations do not spur job growth.

What is needed is a growth in capital for consumers. When the middle- and working-classes are able to make purchases, it’s great for businesses. It’s even better when they’re able to increase the number of purchases they make, as this increases the cycle of demand, production, and job creation.

Wisconsin and Minnesota serve as two states to compare when it comes to job creation and the means how to do it -- or, in one case, how NOT to do it. Both states have similar demographics and population sizes, and each took different directions in governance in 2010.

Gov. Scott Walker pledged to grow jobs by 250,000 by the end of his first term. He is so far failing in keeping his promise, unable to keep up with the pace he said was his "floor."

Minnesota, meanwhile, has seen a growth of jobs that puts Wisconsin to shame -- this, in spite of the conventional wisdom purported by conservatives that tax increases in their state would deter job growth.

What makes Wisconsin and Minnesota so different? The consumer classes in Minnesota saw an increase in their purchasing power, while Wisconsinites saw significantly smaller changes. Here’s a few of the differences that were seen, according to numbers from the first quarter of this year:

  • State workers. In Minnesota, from 2011 to 2013 the average state worker saw their income increase by more than $24 per week, or an increase of $1,248 per year. The number of state workers also increased, by 1,050 employees over the two-year period, a 1.38 percent increase.

  • Private workers. Private sector wages also went up in Minnesota on average by almost $3,800 per year for the typical worker.

  • Jobs created. The total number of jobs created from March 2011 to March 2013 for Minnesota was 99,905 jobs, almost a 4 percent jump.
  • State workers. Wisconsin, on the other hand, saw state workers’ incomes drop from 2011 to 2013 by $72 per week, or $3,744 per year per average worker. The number of state employees also dropped, by 1,375 workers during the two-year period, a decrease of 1.75 percent of the public sector workforce.

  • Private workers. Private sector wages went up by almost the same rate in Wisconsin as it did in Minnesota. However, the average private sector Wisconsinite still earns significantly less than the average Minnesotan -- more on that below.

  • Jobs created. The total number of jobs created in Wisconsin from March 2011 to March 2013 was 54,084 jobs, just barely above a 2 percent jump.
Income comparisons
  • Both Wisconsin and Minnesota saw private sector wage increases. The rates between the two states are pretty similar, but the increase in weekly dollar amounts differ slightly. Minnesota’s private sector workers saw an average increase of $73 per week, while Wisconsin private sector workers saw an average increase of $60 per week.

    In total, the average private sector worker in Minnesota received a salary of $53,144 in 2013; in Wisconsin, the total was almost ten grand less, at $43,316 for the average private sector worker.

  • The private sector gap favored Minnesota in both 2011 and 2013. However, the gap between those two years has grown. In 2011, Wisconsinites earned $176 less on average than private sector Minnesotans. That jumped up to a $189 difference between the states in 2013, a $13 increase in the gap favoring our neighbor to the northwest. That means the private sector wage gap has increased by 7.3 percent between the two years.

  • The public sector wage gap between the states, which until recently has been significantly higher in Wisconsin, has shrunken. In 2011, Wisconsin employees in the public sector earned $112 more than their Minnesota counterparts. In 2013, that gap shrank to just $16 more. For more comparison, in 2011 public sector Minnesotans earned 89.6 percent of the same income that public sector Wisconsinites earned; in 2013, that number changed to 98.4 percent.
What we’re seeing is an increase in wages for private sector employees in both states; however, public sector employees saw a significant jump in Minnesota, whereas in Wisconsin wages actually decreased. What’s more, the number of public sector workers in Wisconsin, who generally earn more than the average private sector worker, shrunk as well.

The average wage (from both sectors) grew in both states. In Minnesota, the average wage increased by 7.5 percent, while in Wisconsin it shot up by 6.9 percent. Both of those numbers are good news; however, in Wisconsin the average wage is still much lower than in Minnesota, which means the purchasing power of the average worker in our state is significantly smaller.

Cutting social programs will only make the problem worse

With a number of individuals being booted off of several social programs in Wisconsin, things aren’t likely to change for the better any time soon. Social programs help aid those who face economic hardships by providing assistance in purchasing or providing a needed service. But social programs do more than just help an individual or a family; they help the economy as well.

For example, Medicaid helps those with lower incomes have health insurance. This is morally sound policy, but it’s great economically as well, as the added hardship of purchasing private insurance would require extra dollars taken out of the pockets of the poor. Those dollars instead contribute to the local economy -- which, as pointed out above, helps create jobs.

Gov. Scott Walker declined federal funds to increase the number of Wisconsinites onto BadgerCare; as a result, nearly 100,000 Wisconsinites will now be without state-funded insurance. Minnesota, on the other hand, accepted those funds and increased its Medicaid enrollment.

This will undoubtedly result in a stronger economy for Minnesotans once again, and stronger job numbers as well. Wisconsin will continue to lag behind, the results of which will come through a diminished purchasing power of the citizenry of the state.


Job creation depends on one very simple concept: demand is necessary before a job can be created. For demand to exist, however, there needs to be a strong consumer class, a large segment of the population that is able to make purchases on goods.

Our consumer class in Wisconsin is getting better, but not through any initiative created by the Walker administration. Indeed, the economic policies produced by Gov. Walker have done very little to spur any strengthening of consumers' pocketbooks.

Walker slashed state workers' pay by instituting the economic provisions of Act 10. He reduced the amount that individuals receiving the Earned Income Tax Credit can claim. And he's set to cut more than 95,000 individuals from BadgerCare, effectively forcing them to purchase insurance they cannot afford.

Meanwhile, in a failed effort to create jobs, Walker gave billions of dollars to corporations in the form of tax relief. That job creation initiative produced very little to show from it.

That's because Walker was trying to aid the wrong entities. Instead of giving capital to corporations -- which will hold onto the added source of income as though it were added revenue WITHOUT demand -- Walker ought to consider ways that he can grow the purchasing power of the citizenry as a whole, who will use the added capital to jump-start the "demand-production-job creation" cycle.

If Walker doesn't change the method for which he supports job creation, then Wisconsin will continue to lag behind. It's as simple as that.

1 comment:

  1. Or it might just be a continuation of a long term trend. Look at the numbers between 2003 and 2010, when WI had a D governor and MN an R governor. Minnesota outperformed on jobs and pay during those years. Jobs were down 1.5% in MN and 2.8% here (qtr 1 to qtr 1). Total payroll was up 17.4% there and only 12.8% here. Avg. weekly pay grew faster there also. Should we credit the policies of Tim Pawlenty and diss those of Doyle? Or is there something more going on?

    Also, be careful about reading too much into the average pay numbers. For example, avg. pay for WI state employees during 2003-10 was up 21.3% vs. 16.8% there. Why? A lot of reasons, but one is probably the fact that they added a lot of state jobs and those new workers brought down the average. Similarly, in Wisconsin during 2011-13, we had a lot of state workers retire. Since they were generally near the top of the pay scale, that tends to drop the average for 2013, making the % change smaller than if they would not have retired.