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Walker vs. Dayton smackdown: Which governor has the better economy?

Two weeks ago I shared some thoughts on Gov. Mark Dayton’s budget proposal.  Someone else did too: Republican Gov. Scott Walker of Wisconsin. He sent out this Tweet:

In '11, IL raised taxes on income by 66% & businesses by 46%. Now MN Gov is proposing a $2 bil tax increase. WI is Open for Business.

Dayton fired back. “Gov. Walker's economy is faring far worse than Minnesota's over the last couple of years," our DFL govenor said. "I would suggest Gov. Walker focus on his problems, and we'll deal with bettering Minnesota."

So what’s the story here? How is Minnesota’s economy doing compared to Wisconsin’s?

Let’s start with a quick overview:

 
Minnesota vs Wisconsin
$44,560 Per capita personal income
(2011)
$39,575
$39,257 Per capita disposable (after-tax) income
(2011)
$35,359
5.5% Current unemployment rate
(December 2012)
6.6%
2,390 jobs
(0.087%)
Civilian employment growth
(Monthly average since June 2009)
124 jobs
(0.005%)

Minnesota’s per capita income is higher than Wisconsin’s in both in pre-tax and after-tax terms.

In terms of jobs, Minnesota’s unemployment rate is lower than Wisconsin’s and its rate of job growth is higher.

Is this a fluke?  Let’s go to the long term record, starting with per capita income.

In an earlier column I analyzed Minnesota’s per capita income with its neighbors by comparing each state with the national average.  Here’s the Minnesota/Wisconsin comparison updated to 2011:

Source: FRED

Wisconsin’s per capita income relative to the national average has, in the best light, stagnated since the 1950s. Minnesota passed Wisconsin in the late 1960s and the gap has grown every year since then. (By the way: The chart looks the same using after-tax income. It’s not the case that Minnesota’s per capita income is higher than Wisconsin’s but that the difference is eaten up in taxes.)

How about jobs? Employment and unemployment are cyclical, so let’s examine these variables relative to the beginning of the recent recession in December 2007. First, here’s a picture of civilian employment:

Source: Bureau of Labor Statistics

Paul Tosto at MPR shows a similar graph using nonfarm employment. The difference between his picture and mine is that nonfarm employment is estimated using the “establishment survey” while civilian employment is based on the “household survey,” both of which are conducted by the Bureau of Labor Statistics.  (I wrote about these surveys here.) Menzie Chinn, professor of public affairs and economics at the University of Wisconsin-Madison, noted that there are some potential problems with the establishment survey data, but the two sources tell the same story: Minnesota’s job growth has been stronger than both Wisconsin’s and the nation as a whole.

Unemployment rates tell a similar story:

Source: FRED

Wisconsin’s unemployment rate started out lower than Minnesota’s in December 2007 but was equal to Minnesota’s rate by December 2008 and has been above Minnesota’s since March 2009.

The bottom line: Minnesota’s economy fared better than Wisconsin’s during the most recent recession and recovery. Further, average incomes for Minnesotans have been higher than Wisconsinites since the late 1960s, even accounting for tax differences.

So, who might want to take advantage of Walker’s “open for business” offer?

These data imply that companies that want to avail themselves of a deeper pool of unemployed workers whom they can pay lower wages would do well in Wisconsin. Perhaps setting up a subsidiary in Wisconsin (to take advantage of lower labor costs) and keeping the high-skill, high-income headquarters in Minnesota is the way to go for those businesses.

Higher income and sales taxes might make Minnesota slightly less attractive for business than Wisconsin, but remember that the private business sector is one part of the larger economy. Healthy businesses, low unemployment rates, strong job growth, and above-average household income are all elements of a vibrant economy. It looks like that’s what Minnesota has and what Wisconsin lacks.

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Comments (11)

This is a fact-based answer

This is a fact-based answer trying to bat down a faith-based opinion.

We all know how many minds those sort of answers change.

The old Henry Ford idea (now there was a ruthless capitalist !) that if you pay people more they will buy more seems to have been lost in the halls of times and the only Keynesians are "leftist fools" and defense contractors.

Shorter version:

Gov. Walker is fact-challenged.

Or willfully ignorant.

Or belligerently ignorant.

Or all of the above.

BTW, this is a very good piece of reporting, Prof. Johnston.

Too bad

…the Republicans in the Minnesota legislature are apparently not familiar with any of what's presented by Mr. Johnston. As Neal Rovick has suggested, there are "inconvenient truths" here.

What's the point, exactly?

Besides the nominal health impact "fee," Minnesota has not raised taxes since the sales tax increase of 1991. In fact, we cut the income tax in 1999 and 2000. The result? Our economy is doing better than Wisconsin (see above).

So why risk that by raising taxes?

On the one hand Dayton brags about our economy, on the other he rips the last 10 years to build support for raising taxes. He can't have it both ways.

Why risk it? Because Dayton wants to spend more. It's all about spending.

2009 another sales tax

Unfortunately we voted on the 2009 increase
Period Rate
August 1, 1967 – October 31, 1971 3.0%
November 1, 1971 – June 30, 1981 4.0%
July 1, 1981 – December 31, 1982 5.0%
January 1, 1983 – June 30, 1991 6.0%
July 1, 1991 – June 30, 2009 6.5%
July 1, 2009 – Present 6.875%

Statistics

You have all probably heard about the 3 types of statistics...statistics,damn statistics and lies.
Numbers don't really tell the true story comparing the 2 states. WI has a much larger defense industry than MN and will is subsequently being hit harder by defense cutbacks. The area along Lake Michigan north of IL is much more industrialized than any part of MN and has been hurt by the slow economy. The Univ of WI, Madison is still a world renowned university where graduates like to stay but can't find jobs in their field, i.e. there are a lot of underemployed people in Madison.
Milwaukee has a huge unemployment rate and was recently called the most segregated city in the US. MN does not have any of these types of problems with a more diverse economy and the Twin Cities being a transportation hub.

?

Defense spending has declined? http://goo.gl/C3HUh http://goo.gl/CinPx It has sharply risen over the past 10 years. By a LOT. The only leg you might have to stand on is the CBO's projected flattening of military spend over the coming 5 years, which may have caused stagnation in industrial investmetn in that sector in WI. But this is pure speculation and I would hardly say that has been a cause of LOWERED defense industry presence over the past 5-10 years..

Your point on the University if Wisconsin further emphasizes the point of MN > WI economically. Even with a world-renowned university, that actually ranks slightly higher than UMN for research http://mup.asu.edu/research2010.pdf (where a school would be expected to have ties to and increase the private sector success), they STILL can't retain their graduates the way the Twin Cities (and Mn at large) can. If WI is open for business and their policies were so great, wouldn't UW and their students be a boon and further concentrate their population in the Madison-Milwaukee corridor? There is a reason we have SO many graduates of UW, Iowa, Iowa St, NDSU, UND, etc living in the Twin Cities.

"Milwaukee has a huge unemployment rate and was recently called the most segregated city in the US. MN does not have any of these types of problems with a more diverse economy and the Twin Cities being a transportation hub."

Are you citing cause or effect? Milwaukee HAS a huge unemployment rate BECAUSE companies do not want to locate there anymore. Stating that Milwaukee is one of the most segregated cities further underscores the lack of good social policy the city and state has implemented. Finally, to state that Minneapolis/StP is a "transit hub" whereas Milwaukee isn't (and isn't MUCH closer to the economic/transit powerhouse Chicago) glosses over reality.

Slow Economy

If you look at the charts, Minnesota's economy has been outperforming Wisconsin's since the mid- to late-1960s. It's not just a recent slowdown.

I don't see how "no one can find a job in Madison, and Milwaukee's a pit" contradicts the overall conclusions here.

Ginny

Facts excerpted from an Atlantic article called ""Tax Cuts Don't Lead to Economic Growth," by Thompson in the Atlantic. If you look at statistics for the past 10-15 years, you can see that in 1990, President George H. W. Bush raised taxes, and GDP growth increased over the next five years. In 1993, President Bill Clinton raised the top marginal tax rate, and GDP growth increased over the next five years. In 2001 and 2003, President Bush cut taxes, and we faced a disappointing expansion followed by a Great Recession.
If you want a very graphic representation, look for this article on tax cuts.
It also says that top tax rates "have had little association with saving, investment, or productivity growth." However, the study found that reductions of capital gains taxes and top marginal rate taxes have led to greater income inequality."
The last 10 years of Minnesota economics has NOT been a happy one. We have shortchanged our students, and the investment in education means deep cuts those services--like education--that Minnesota is failing to invest in our future prosperity.
We have more than 23,000 additional students in our public colleges and universities, but the State of Minnesota spends less on higher education than it did 10 years ago, and tuition has risen substantially. Minnesota needs more college-educated people to meet the job requirements of the future, but we’re making it hard for many to afford that education. It is scandalous that so many able, willing, and talented people in lower-income brackets are unable to go to school -- without having an enormous debt load.
Early childhood education has proven benefits as Artur Rolnick and others have proven, with figures and facts. Yet, Minnesota families are on waiting lists for assistance that would help them afford early childhood education essential to making sure all kids start school ready to achieve.
Saying this is a "spending problem" is a myth republicans keep repeating, but it is not true, and studies and figures can show it.
It's ridiculous to attribute the Dayton budget to his desire to "spend more." What would be the motive. No, there are good and solid reasons Dayton has submitted the budget he has.
The proof is all in the other direction. That is not a risk.

How are tax revenues spent?

This fine piece of reporting reminded me of Sen. Tom Bakk's earlier comments about how CEOs he's met with don't mind a little extra tax IF the money is spent in ways that help their business: education, infrastructure, etc. I do not want to pay higher taxes, but I support Gov. Dayton's priorities for investing my extra money, so I'll make the sacrifice. I like seeing Minnesota move forward as opposed to the dis-investment, do-nothing years of Tim P.

Well done Dr. Johnston

Looks like a good slap down for Minnesota.

And thank you Mr. Moen. Public spending is generally not for spending but investing and the Governor seems on the right track.