Commentary: Industry Differences, Twin Cities’ Uniqueness Explain Economic Divergence of States

For much of the 20th century, Wisconsin’s economy outperformed Minnesota’s, but in the last 40 years, the tables turned. Why? Industry differences between the two states and the unusual success of a single cold-weather metro, Minneapolis-St. Paul, are the main reasons, according to “Two State Economies, One Rare Metro,” a new analysis from the Wisconsin Taxpayers Alliance (WISTAX).

From 1929 to 1966, per capita personal income was, on average, about 5 percent higher in Wisconsin than in Minnesota. Since then, it has increased faster in Minnesota, and Wisconsin now trails its neighbor by 8.5 percent.

Industry differences were an important factor in the economic divergence of the two states. During the 1969-2000 period, the job count in Wisconsin’s 10 key industries rose 28.7 percent. Minnesota’s top 10 industries were more diverse, with jobs expanding 69.6 percent.

The unique success of the Twin Cities is a second factor explaining the two states’ diverging growth trajectories. From 1969 to 2013, jobs in the 14 Minnesota metro counties in and around the Twin Cities increased 133 percent. Employment elsewhere in that state rose just 79 percent. However, since nearly two-thirds of Minnesota jobs are in the Minneapolis-St. Paul region, outsized growth there pulled up statewide economic performance.

In Wisconsin, job location and growth are the reverse of Minnesota’s. Less than 30 percent of statewide employment is in metro Milwaukee (Milwaukee, Ozaukee, Washington, and Waukesha counties), with the remaining 70 percent elsewhere in the state. In other words, Wisconsin’s economy is more geographically scattered. Since 1969, job numbers outside the Milwaukee area nearly doubled (98 percent), far outpacing the state’s leading metro where employment expanded 51 percent. By the same token, job growth in outstate Wisconsin bested outstate Minnesota by nearly 20 points, 98 percent vs. 79 percent.

Job creation in the Minneapolis-St. Paul area was unique for a northern metropolitan region. During 1969-2013, it ranked ninth highest of the nation’s 30 largest metro areas. Of the top 10, only temperate Seattle is farther north. By contrast, metro Milwaukee ranked among the bottom third (21st) with employment increases similar to those in other northern, industrial cities, such as Buffalo, Cleveland, Detroit, and Pittsburgh.

An important factor in the unmatched success of Minneapolis-St. Paul is the number of Fortune 1000 corporate headquarters there. Not only does Minnesota (28) have more headquarters than Wisconsin (23), but nearly all (26) are in its leading urban center. By contrast, only 13 of Wisconsin’s 23 are in metro Milwaukee.

The close proximity of headquarters creates a supply of highly educated managers who can easily move from company to company. This creates a vibrant and fluid labor market attractive to talented individuals both locally and globally and ensures a pool of seasoned leadership capable of founding new firms and spurring the success of growing ones. These are the types of businesses that generate new employment.

This pool of highly-compensated business leaders helps explain Minnesota’s per capita income advantage over Wisconsin. Even though the Badger State had 5.5 percent more federal income taxpayers in 2013 than its neighbor, Minnesota had 43.6 percent more filers with incomes over $200,000, the individuals who disproportionately boost both tax revenues for government and gifts to charitable organizations.

“What this report shows is that the differing economic performances of Wisconsin and Minnesota are rooted in basic geographic and industrial differences that date back decades. Entirely data-driven, it brings dispassionate analysis to a subject too often dogged by intentionally misleading rhetoric from both ends of the partisan spectrum,” said WISTAX President Todd A. Berry.

A free copy of The Wisconsin Taxpayer magazine “Two State Economies, One Rare Metro” is available by visiting wistax.org; emailing [email protected]; calling 608.241.9789; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.