December 2023 Board Member Newsletter Article

Laura Stein

Jan 15 2024

Minnesota’s slow economic growth marred by an increasing cost of business

Doug Loon
President and CEO
Minnesota Chamber of Commerce

Did you know that Minnesota is the 22nd dog-friendliest state in the nation? It is also the 9th “most fun” state in America and the 13th “weirdest.”

Research groups and news organizations rank states on everything, from the silly to the serious. The data they consider when comparing state-by-state performance is chosen to fit what they are trying to measure. These ranking reports are often over-simplified and used as a marketing tool for the organization promoting the study. They often include subjective analysis on which economic indicators are included, which can skew the results.

For nearly a decade, the Minnesota Chamber’s Business Benchmarks report has served as a compass through the maze of rankings that range from the whimsical, such as ‘weirdest’ or ‘most fun,’ to the more substantial, yet conflicting, business climate indices.

Using data to define the “good” or “bad” in a business climate is complicated. The outcomes are clear, however: A good business climate is one that grows businesses, fosters innovation, builds a pipeline of talent and keeps tax, cost and regulatory burdens in check. It takes into account affordability and quality of life for employers and employees. Although the relative importance of these factors may vary by industry, company or geographic location, Minnesota businesses often report that a balanced approach is most important, with both cost and foundational competitiveness.

This year’s report highlights a troubling trend: Minnesota lags behind national economic growth. Despite historical leading in growth, Minnesota now ranks 35th in GDP growth at 1.2%, notably below the national average of 1.9%. This extended decline spanning over two decades has seen the state slip from its former 17th position in overall GDP to the 20th, trailing behind states exhibiting robust growth.

Taxes continue to be a persistent concern for businesses, with Minnesota consistently ranking among the top 10 states in various tax categories. The state’s high state and local taxes per capita surpass the national average. Particularly noteworthy is the burden from Minnesota’s progressive tax system, boasting the nation’s 6th highest individual tax rate and a forthcoming top corporate tax rate of 9.8%, predicted to be the highest nationwide.

While Minnesota maintains relative affordability in terms of cost of living, other expenses like electricity and health insurance hover around the national average. Nevertheless, these costs have been steadily rising, mirroring a nationwide trend.

Amidst these challenges, a glimmer of hope emerges from Minnesota’s innovation index, ranking 6th in patents per capita. However, concerns arise from the state’s 45th position in tech industry growth, prompting a closer scrutiny of Minnesota’s strategies in this sector.

Minnesota’s traditionally robust workforce faces challenges, evident in declining test scores, out-migration and a decreasing graduation rate. While the state maintains a 7th position in labor participation, this metric is on a downward trajectory, raising concerns about sustaining a skilled workforce.

The Business Benchmarks report provides a comprehensive analysis of Minnesota’s economic terrain, delineating areas of strength and concern. We encourage you, as chamber leaders throughout the state, to share this report with your legislators and community leaders. This analysis is crucial in steering advocacy efforts on behalf of the business community, offering a roadmap to fortify the state’s economy by addressing weaknesses and leveraging strengths.