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No Excuses? Minnesota's Unemployment Rate Less Tied to National Economy Than That of Wisconsin and Iowa

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As December’s unemployment numbers demonstrate, Minnesota continues to endure a skyrocketing rate of job losses, especially when compared to its neighbors to the south and west.

To the west, North Dakota and South Dakota have the second and third lowest unemployment rates in the nation, at 3.5 percent and 3.9 percent respectively.

Iowa and especially Wisconsin, however, are perhaps better barometers from which to compare the employment situation in the Gopher State, owing to their comparatively greater similarities in population and industry than the Dakotas. Iowa’s 4.6 percent unemployment rate ranks as the sixth lowest in the country, while Wisconsin’s 6.2 percent jobless rate is the 19th lowest.

Minnesota is in the most dire economic straits in the region, with 6.9 percent of its labor force currently out of a job – the 26th lowest rate in the country. With recent layoffs by heavyweight employers such as Target, the January numbers are only going to get worse when they come out in a few weeks.

Governor Tim Pawlenty frequently cites the national economic crisis in his speeches as a causal agent for the economic problems faced by Minnesotans today. And, no doubt, the national economic situation is having a big impact on the state – and the economies of most states across the nation.

But how much are the Gopher State’s economic problems, specifically its high rate of job loss, tied to the national scene, and how does it compare to other states in the region in this regard?

Using the national unemployment rate as a rough proxy for the state of the nation's economy, Smart Politics conducted linear regression analyses, with the national jobless rate as the independent variable, and the state unemployment rates of Minnesota, Wisconsin, and Iowa as dependent variables respectively. (Note: the methodological problem using the national rate as the dependent variable is slight, as each state’s unemployment figures determine a small amount of the movement in the national rate, which is comprised of all 50 states. Moreover, this analysis is primarily interested in the comparative differences among the three states).

The results, using 396 monthly data points going back to 1976, shows that an increase of one percent of the national unemployment rate causes an increase of 0.82 points in the jobless rate in Minnesota, significant at the .001 level. Eighty four percent (R Square = .840) of the variation in the Gopher State’s unemployment rate is in this model is explained by changes in the national figures.

As these numbers demonstrate, Minnesota’s economy is significantly tethered to what is happening nationally. Minnesota is home to many Fortune 500 corporations (e.g. Best Buy, 3M, Target, General Mills etc.), and as the national economy sours, and more people lose their jobs, it is no surprise that this will have an effect on the demand for products produced (and thus the need for jobs) here in Minnesota.

Historically, however, the impact of the national economy seems to be much more pronounced on the rate of job loss in Iowa and Wisconsin in particular.

In Wisconsin, an increase of one percent of the national unemployment rate causes an increase of 1.08 points in the jobless rate, significant at the .001 level (R square = .746). This is approximately a 32 percent greater impact than that on the state of Minnesota.

In Iowa, an increase of one percent of the national unemployment rate causes an increase of 0.90 points in the jobless rate, significant at the .001 level (R square = .652), or about a 9 percent greater impact than on Minnesota.

In other words, while a large portion of the job loss numbers experienced in all three states can be explained away by the national economic scene, the impact, historically, is lessened in Minnesota compared to Wisconsin and Iowa.

Excuses, then, certainly are in order. However, due to the comparatively bleaker situation Minnesota currently faces than that of its neighbors, watch for Governor Pawlenty to nonetheless invoke the national economic woes at least as frequently, if not more so, than Governors Jim Doyle and Chet Culver (especially now that a Democrat is in the White House).

Previous post: Is the DFL 'Overrepresented' at the State Capitol?
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