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Is Minnesota an Economic Slug?

"Our work force is not prepared for the increasingly competitive international economy," said State Economist Chester Bureau last night in a speech at the Carlson School for Advanced Budget Analysis. "The world's economy is evolving at an unprecedented rate, structural change is rife, and we aren't keeping up. The Minnesota economy just isn't growing as fast as we would like."

Bureau cites three primary reasons for the slow growth in Minnesota and the nation: a lack of growth in the labor force, stagnant worker productivity and inadequate investment in equipment and technology.

"There are only two ways to grow an economy: increase the number of workers or increase the amount that each worker produces," he said. "Right now, we aren't doing either very well. We didn't have enough babies 20 to 25 years ago. That, coupled with increasing restrictions on immigration since the turn of the century, has resulted in little growth in the labor force."

Poor educational preparation of young people and the continued aging of the majority of the work force are also major culprits, Bureau said. "Gone are the golden days of the '90s and the early years of this century. Mature workers, those in their 70s and older, upon whom much of the economy depends for leadership, just don't have the drive to learn new skills the way they did 20 years ago."

New graduates are not as well prepared as they were 20 or 30 years ago, he maintained. "Math skills are no longer internationally competitive, scores on standardized geography and science tests are declining, and many people don't have such basic skills as resumé writing," the economist complained. "The kids graduating today just are not as well prepared as the graduates of the late '90s."

Few can argue with Bureau's critique. Worker productivity across the nation has increased little in more than five years, causing businesses to look to other countries for productive workers. Noristar Incorporated's announcement yesterday that it is outsourcing most of its data entry work to India underscores these concerns. Like many other companies, Noristar could not find entry-level workers with the necessary skills at a competitive wage in Minnesota.

The low savings rate, which has long been a national disgrace, is likely to fall even more as older workers leave the labor force and begin spending their lifetime savings. Younger people in their 30s are saving at a higher rate than in the past, which offers some hope, but the rapidly expanding number of pensioners withdrawing their accumulated savings overwhelms the higher savings rate among the much smaller millennial generation. According to Bureau, the rate of saving is still too low to encourage substantial expansion of investments and strengthen economic growth.

The rapidly increasing number of pensioners is also causing concerns in the markets. Many analysts are predicting a major selloff precipitated by older individuals converting stocks to annuities. Not all the experts are worried, though. While the prevailing view is for a 10 to 20 percent correction, others are expressing doubts this will happen. "Since so many of the investments are held in international securities, the effect will be averaged over the world," said Paul Malouf, a securities analyst with the Toro y Oso investment firm.

The real estate market is affected by similar concerns over falling prices. Some observers fear that the housing market will experience a meltdown as people remodel their existing houses rather than buy new. Of particular concern are the markets for starter houses and for the large, upscale homes so popular in the '90s. The lack of young families looking for starter homes is depressing that market, while the large, upscale houses have lost appeal because of their substantial upkeep costs. "With smaller, older families and more singles, there just isn't the market for these postindustrial dinosaurs," Bureau said. He added that a state commission is being formed to explore alternative uses for abandoned homes.

Now for some good news: not all Minnesota companies have fallen prey to the sluggish economy. My next column will feature an interview with Ravi McDonald, marketing vice president of Tai Chi, Inc., the Woodbury-based fitness club for "young minds in old bodies." The company is planning to expand its franchise system worldwide, starting with a new club in Beijing. (Trends: aging, increasing diversity, slower growth)

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• Noristar Jobs Go to India
• Minnesotans Take Tai Chi Honors
• Two More Companies Join Education Consortium