A TALE OF TWO STATES

Minnesota and Wisconsin are two states similar in many ways. They both originated historically out of the old "Northwest Territory." They are geographically contiguous and their population numbers are fairly close- Minnesota has 5.6 million inhabitants and Wisconsin 5.8 million.  Racially their population make up is also fairly similar- about 86% of their population is white and between 5-6% is black.
But they are also different from each other. Minnesota is the larger with a landmass of 86.9 million square miles, while Wisconsin has a smaller 65.5 million square miles. Minnesota, whose state motto is "The Land of 10,000 Lakes" actually has nearly 12,000 lakes (of 10 or more acres each). Wisconsin claims to have over 15,000 lakes according to its Department of Natural Resources (however, there are no minimum size restrictions in this figure- I guess any body of still water counts as a lake).


And, historically, their employment growth pattern was also similar. Employment in both states grew by 25% during the 1990s, significantly better than the nation as whole that saw employment growth by 20% in the same period.
But the 2000 recession broke that pattern. Since that year, as the chart to the right shows, the employment growth paths of the two states diverged, with Minnesota displaying more robust growth. In fact, employment in Minnesota has grown about 6% since 2000, besting Wisconsin's paltry growth of only 2% over the last fifteen years. We should note that both states lag the overall U.S. growth of 8% during the same period.

It is a Tale of Two Sectors
A natural question to ask is why has Wisconsin performed worse than its sibling state? The economic policies of each state are likely influencing the development patterns. But, more fundamentally, we find that it's simply the structure of industry and employment that accounts for the differences.

Wisconsin's largest economic ssector in 2000 was manufacturing, generating one-fifth of the jobs; in contrast Minnesota's largest is the services sector, also with one-fifth of its jobs. Now what is important to realize is that manufacturing employment has been declining nationwide since the 1980s, as the industry has become more mechanized and businesses substitute capital for labor- both states have gone through this decline. In contrast, the services sectors and employment in the services has been increasing. Thus, Minnesota has benefited from the overall national transition from an industrial to a services economy (from an employment standpoint).

The two charts below illustrate these differences.

Manufacturing, the sector that Wisconsin is more heavily invested in, is one in which employment is in decline- even though manufacturing output (not addressed in this post) has been increasing steadily nationwide.
The chart to the left clearly shows that both states have performed significantly better than the nation as a whole. Employment in manufacturing nationally has fallen about 30% over the last 25 years. But for Wisconsin and Minnesota, the decline has been a more modest 10%.



In contrast the Services sector, relatively more important for Minnesota's labor markets, is one of continuous growth.
It can be seen in the chart that both states have followed the national pattern closely.






Economic Policies and Manufacturing Employment
The U.S. Senate is considering a bill to designate 25 universities as "Manufacturing Universities" and provide funds to strengthen the teaching of engineering in those schools. This is fine as far as improving the skills of engineers and improve the quality and productivity of U.S. manufacturing. But this effort will not increase the number of people employed in the manufacturing industry, if that is what is intended by this bill. Better trained engineers and scientists focused on manufacturing will undoubtedly lead to yet greater mechanization of the industry. This is the correct way to go, although we must be careful not to mislead or assume that the decline in manufacturing employment, shown in the chart above, will be reversed significantly.