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Commentaries on Greater Minnesota

Periodically we will present commentaries on topics of interest to community and economic developers across rural Minnesota. Below is a list of all commentaries with the most recent listed first.

 

Commentaries
Private Gains and Public Losses
December 2010
Jack M. Geller, Ph.D.
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In a previous column I suggested that looking back a year or more from now we may come to view July 2010 as an important turning point for the Minnesota economy. With a strong gain of 19,000 private sector jobs in July, Minnesota businesses clearly made a statement that a jobs recovery was taking hold. It was the type of performance that portends a break in the old cycle and the beginning of a new one. At the same time, far less mentioned was the observation that along with the gain of 19,000 private sector jobs in July was a loss of 9,100 public sector jobs.

Interestingly, the new trend that appears to be emerging is far more complicated than simply a substantive recovery of jobs in the private sector. As I have often noted, while the Minnesota economy is a reflection of the production, sale and distribution of goods and services in a global marketplace, our state and local budgets are best described as political instruments. As a result, a state budget is the culmination of dozens of political decisions often made by a handful of political leaders - some good; some not so good. And while macroeconomic theory tells us that economies find their equilibrium, no such theories govern the political ideologies or whims in constructing a state budget. Accordingly, there is no reason to assume that the Minnesota state budget will necessarily reflect the recovery taking hold in the economy. So allow me to suggest that the good news in this new trend will be the continuation of private sector job growth; and the bad news will be continued reductions in public sector employment.

Why am I so gloomy about public sector jobs? Well, there are three factors that are affecting my outlook. First and foremost is the current state budget situation. With a budget deficit greater than $5 billion (note that this column is being written prior to the release of the November state budget forecast), it is simply impossible to responsibly address such a large deficit without further public sector job losses. These losses will occur in state agencies, higher education institutions and school districts, as well as within county offices and city halls. Second, the current political sentiment appears to be conducive to those who advocate that government at all levels have gotten too big and need to be "right-sized." And third, this is actually the continuation of a trend that has been steadily occurring in Minnesota for the past decade. In fact, our annual state workforce reports often highlight the reduction in state employees since 2001.

Interestingly, when we talk about reducing the size of government, more often than not, people look at the size of our state expenditures to reflect the size of government. But does that really make sense? For example, we can reduce the gas tax in Minnesota and significantly decrease the funds we have to build and repair our state roads and highways. But while that reduces overall state expenditures, is that really reducing the size of government? Similarly, we can whack our human services budgets and greatly decrease state Medicaid reimbursements to nursing homes. But with one of the fastest growing cohorts in the state being those who are 85 and older, is that what we mean by reducing the size of government? I don't think so. So as this agenda of downsizing government commences, it is likely that it will be reductions in the number of public employees that best reflect its success.
And with that in mind, one region that may disproportionately feel the negative effects of this downsizing is the Mankato/North Mankato metropolitan area. While we typically do not think about it, the Greater Mankato metro is home to close to 4,000 state-funded jobs. This includes employees such as those at the State Hospital in St. Peter, MnDOT employees at the District 7 Office in Mankato, as well as MnSCU employees at MSU and South Central College. In fact, it is the highest concentration of state-based jobs outside of the Twin Cities metro. In total it’s about 1,500 more state jobs than in St. Louis County and 1,000 more than in Stearns County; the two other high concentration areas outside of the Twin Cities.

So if this new trend of private sector job growth and public sector job losses emerges, what will its effect be? Well first, it may significantly reshape the composition and culture of the workforce in south central Minnesota, as many of the jobs lost will be highly skilled; requiring college and graduate degrees. But equally important, it will seriously "handcuff" the region's ability to reduce the regional unemployment rate, if we find that one public sector job is lost for every couple of private sector jobs gained. Like dancing the Cha-Cha, it's two steps forward and one step back.

Let's hope I am wrong about that.

Geller is professor & head of the Arts, Humanities & Social Sciences at the University of Minnesota, Crookston. He also serves as the director of the federally-funded EDA Center at UMC. He can be reached at gelle045@umn.edu

This document was prepared by the University of Minnesota, Crookston under award number 06-66-05709 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.

The University of Minnesota is an equal opportunity educator and employer.

 
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