Minnesota and the New Normal

Tom Stinson, University of MinnesotaTom Gillaspy, State of MinnesotaJuly 2010

Recent Economic and Demographic Events Have Changed the Outlook

for as Far as We Can See

This Recession Was More Severe Than Those of 1990-91 and 2001

The U.S. Economy Lost 8.4 Million Jobs in the Great Recession

Total U.S. Wages Fell in 2009Quarterly Year-Over-Year

Percent Change

Household Net Worth Fell by More Than $17 Trillion Dollars

Minnesota Saw a 30 Percent Jump in Workers Turning Age 62 in 2008

0

10,000

20,000

30,000

40,000

50,000

60,000

7/05 to7/06

7/06 to7/07

7/07 to7/08

7/08 to7/09

7/09 to7/10

7/10 to7/11

7/11 to7/12

Year Turning Age 62

Wo

rke

d W

ith

in P

as

t 5

ye

ars

2005 ACS

The Age Distribution Has Changed

From 2010 to 2020, Minnesota Will

See Large Increases Age 50s and 60s

20,15036,190

47,3305,050

-30,680-9,980

47,95061,920

-2,680-63,650

-42,31054,240

102,960112,540

91,37041,400

8,44016,500

0-45-9

10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-7980-84

85+

Source: Minnesota State Demographic Center, rev 2007Numbers are rounded

Labor Force Growth Is About To Slow Sharply

1.52%

1.12%

0.75%

0.43%

0.10% 0.13%

0.27%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1990-2000

2005-10 2010-15 2015-20 2020-25 2025-30 2030-35

Ave

An

nu

al C

han

ge

World Labor Force Growth SlowingProjected Change In Working Age Population (15-64)

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Minnesota UnitedStates

Europe China Japan Rest ofAsia

SouthAmerica

Africa

Continent

An

nu

al

% C

ha

ng

e

2000-10

2010-20

U.S. Census Bureau

Minnesota Will Grow More Diverse; Remain Less Diverse Than The Nation

1416

19 20 22 23 25

2023

2629

3133

35

0

10

20

30

40

50

60

2005 2010 2015 2020 2025 2030 2035

Pe

rce

nt

Min

ori

ty

Minnesota Total

United States Total

Ramsey County

Twin Cities (7 cou)

State Demographer & Census Bureau projections

Change In Minnesota K-12 Enrollment 2002-03 To 2009-10

Mn Dept of Education

In 2006, Minnesota’s Foreign Born Workforce Was 240,000 or 8% Of The

Total Workforce

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

Less Than HighSchool

High School

Some College

Bach+

2006 ACS

The Old Normal+ The Great Recession

+ Long Run Demographic Changes= The New Normal

The “New Normal” Probably Means

• Higher interest rates

• Slower economic growth

• Increasing numbers of retirees

• Less consumption; more saving

• A more diverse population

• A shift in the balance between private and public sectors

• Creative destruction/disruptive innovation will change the way we deliver services

• More uncertainty about the future

More 65+ Than School Age by 2020

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1950 1960 1970 1980 1990 2000 2010 2020 2030

18-24

65+

5-17

Census counts & State Demographer projection, revised 2007

Health Care Spending Jumps After 55U.S. Health Care Spending By Age, 2004

$1,855$1,074 $1,445

$2,165$2,747

$3,496

$6,694

$9,017$9,914

$3,571

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

Source: Agency for HealthCare Research and Quality, Medical Expenditure Panel Survey,data for per capita spending by age group in the Midwest. Excludes spending for long-term care institutions.

FY 2012-13 Budget Gap Now $5.8 Billion

($ in millions) FY 2012-13

Resources $32,906

Spending 38,695

Difference ($5,789)

Inflation $1,181

Planning estimates assume:•Complete repayment of the K-12 aid deferral. Delaying repayment would save $1.163 billion•.No repayment of the K-12 Property tax recognition shift. Repayment would cost 564 million.•No continued GAMC spending. Restoring the GAMC to its former level would cost $928 million. Current agreement costs $214 million.

If State Health Care Costs Continue Their Current Trend, State Spending On Other Services Can’t

Grow

3.9%

8.5%

0.2%0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Revenue Health Care Education & AllOther

An

nu

al

Av

e G

row

th 2

00

8-2

03

3

General Fund Spending Outlook, presentation to the Budget Trends Commission,August 2008, Dybdal, Reitan and Broat

The Great Recession Has Been The Great Recession Has Been Blamed for Raising the Level of Social Blamed for Raising the Level of Social

AngstAngst

But What Is Really HappeningBut What Is Really Happening

Is That We Have Entered A Is That We Have Entered A

““NNeeww NNormal”ormal”

Grieving For The “Old Normal”• Denial – “This is not happening.” “Just wait, things will

return to normal.”

• Anger -- “Who is to blame?” Rage and gridlock rule and anyone who symbolizes life, energy, progress, success, happiness, etc. is treated with resentment and mistrust.

• Bargaining – “I’ll change if this just goes away.” Somehow, we can get back to the old normal if we just return to good, ole fashioned (conservative/liberal) values.

• Depression (emotional, not economic) – “What’s the point in trying?” “We are all doomed anyway.” The certainty/finality of events is finally recognized.

• Acceptance – “It’s going to be okay.” Looking for opportunities begins.

But Why Fear The New Normal?It Plays To Our Strengths!

Future economic growth will depend increasingly on increasing productivity and less on labor force size

Education has been the key to Minnesota’s productivity and prosperity

Future productivity increases will depend on decisions and the investments we make now

Public Sector Productivity Growth Will Be Essential

Productivity Is Not Just Producing at a Lower Cost

Increasing Productivity Also Means

Making things better

(improved quality)

Making better things

(innovation, new products)

Education Is The Key To Productivity

Minnesota High School Graduation Ratio

2007-08 Mn Dept of Education 5 year graduation rate. Percent of 9th graders who graduate within 5 years

High School Graduation Is No Longer Enough

• 70% of Minnesota job openings will require at least some college--63% nationally

• In 1973, 28% of job openings required some college

• Minnesota is the 3rd most education intensive job market in the nation

• Nationally, college degrees conferred will need to increase by 10% a year by 2018 to meet the demand for skilled workers and avoid slower economic growth

Georgetown Univ Center for Education and The Workforce

The Fiscal Catch-22

If we don’t make the necessary public investments in human capital, research and infrastructure, then we won’t have the productivity gains needed to provide the resources to make those investments.

“If something can't go on forever, it will stop.”

Herbert Stein, Chair President Nixon’sCouncil of Economic Advisors

“I skate to where the puck will be, not to where it has been.”Wayne GretzkyHockey Great