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Prevalence of low-wage jobs: A Minnesota wake-up call

Courtesy of the author; Data from American Community Survey
Central Minnesota incomes fall as distance from the metro increases.

recent MinnPost article paints an appealing economic and demographic picture of Central Minnesota. The region enjoys population and job growth well above the state average. But, too many of the jobs in Central Minnesota — and statewide — fail to support the basic needs of a typical family.

van wychen portrait
Jeff Van Wychen

A new North Star Policy Institute report estimates the percentage of Minnesota jobs with wages that fail to support the “basic needs” of a “typical family.” These basic needs are spartan; they include only essential health and safety requirements (e.g., food, housing, health care), and exclude other arguably necessary items (e.g., education and retirement savings). The “typical family” consists of two adults and one child, with one adult working full-time and the other part-time for a combined sixty hour work week. The basic needs living for this typical family resembles that of the working poor — not fully in poverty, but well shy of the middle class lifestyle to which many Minnesotans aspire.

MinnPost correctly notes the robust job growth rate in Central Minnesota. But, 48 percent of the jobs in what MinnPost defines as Central Minnesota fail to pay a basic-needs wage. Compared to other regions examined by MinnPost, Central Minnesota has the highest concentration of jobs that don’t meet basic needs, although workers in many other regions are not much better off.

If Central Minnesota underperforms the rest of the state in wages relative to basic needs, then how is it that the region’s 2016 median household income ($62,600) nearly equals the statewide median ($63,200) and surpasses that of all other Greater Minnesota regions? To some extent, the answer lies in proximity to the metro area. MinnPost notes that many workers commute to the seven-county metro area for work; these commutes undoubtedly buoy income in areas closest to the Metro. Central Minnesota incomes fall as distance from the metro increases. Median incomes in the four Central Minnesota counties adjacent to the metro equal or exceed the state median. Meanwhile the remaining ten counties have median incomes significantly below the state median.

A commute to the metro to find work capable of supporting a family is not a sustainable solution for Central Minnesota in particular or Greater Minnesota in general. The cost of such commutes in time and money burdens even those who live near the metro. And the feasibility of such a commute further diminishes as distance from the metro increases.

Furthermore, too many metro jobs also don’t pay enough to make ends meet. While metro wages exceed Greater Minnesota wages, the cost of basic needs in the metro is also higher. As a result, the wages of 44 percent of metro jobs fail to meet the typical family’s basic needs—same as the statewide average and not much better than Central Minnesota’s 48 percent average.

The lack of jobs that don’t pay enough to meet even basic needs is not a problem unique to Central Minnesota. In every region of the state, at least a third of all jobs do not meet this minimal standard.

Compared to other states, Minnesota looks pretty good. After all, the state’s median income and median wage surpass the national average, yet the state’s cost-of-living is below average. But, our analysis suggests that we cannot rest on our laurels. The basic-needs wage problem underscores the larger problem of stagnant and declining wages, which in turn erodes consumer purchasing power. This erosion both reduces demand for goods and services, and retards job creation and economic growth. More severe recessions and lackluster recoveries follow.

These wage issues, both in Central Minnesota and in the whole state, demand a public policy response. Strategies to enhance the wages and purchasing power of Minnesota workers, especially those in jobs that do not pay enough to meet basic needs, is the best way — indeed, the only way — to stimulate widespread economic growth and prosperity.

Jeff Van Wychen is the fiscal policy fellow for the North Star Policy Institute.

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Comments (7)

Too few

…dollars for many people, in many jobs, and…to be diplomatic, let's call it "overcompensation" for a relative few people in a relative few jobs at the other end. Often, even usually, the requirements in terms of preparation and even licensing for those "overcompensated" jobs are more rigorous and daunting than they are for the lower-wage jobs, but that also often **not** the case.

One really obvious way to address this disparity would be for those low-wage workers to organize themselves, but the SCOTUS is currently ruling on a case that is expected to see 9 wealthy judges rule against unionization, and in the process undermine the political party that currently, and historically, represents the economic interests of those low-wage workers better than its opposition.

This is simply one among several serious drawbacks of our economic system, generally not acknowledged by either political or economic leaders, with tension between employers who would prefer their employees work for free and employees who would generally like to be plutocrats baked into the structure of the system as it's currently operating. The share of the nation's wealth held by the infamous "1%" compared to the other 99% is a telling statistic, especially when compared to the figures for the same categories 50 or 75 years ago. Executive compensation, largely unjustified, is almost totally divorced from the contributions to both company and society's welfare that ought to accompany that compensation. Individual and corporate greed is just as ugly in this version of the Gilded Age as it was during the original a century and more ago, and, much as was the case then, the cliché still applies: Them that has, gets. Them that don't, don't.

A companion piece

on the relative cost of living in various areas of the state, tied to these results, would be a worthwhile effort. Mere income stats are relatively meaningless, absent that information.

missing factor

The problem with most comparison of wages between communities and regions is failure to take into account cost of living differences.

The median wage in Stearns County (the largest of the Central Minnesota counties) is listed as $57,000. St. Cloud is the principal city. $57,000 in St. Cloud is equivalent to $64,176.90 in Minneapolis, according to a Bankrate cost of living calculator.

An MIT calculation of "living wage" (2 adults, 1 working, and two children): $50,441 in St. Cloud, $55,088 in Minneapolis (9.2% higher).

The key to increasing the median wage in Central Minnesota would seem to be development of more jobs with positions requiring higher wage skills.

Jobs, in general, are slowly going extinct.

The best explanation of the hollowing out of the middle class has been offered by two MIT economists, McAfee and Brynjolfsson, and the argument is laid out in their books, the most recent of which is Machine, Platform, Crowd. A link to an interview with the pair is below.

I hope this two gentlemen are wrong, totally wrong and mistaken in every regard, but I fear they are not.

Living wage jobs are disappearing because the economy simply does not need as many relatively high paid workers, and the world where most of us are making $12 an hour will be an ugly one without a massive expansion of earned income credit or a universal basic income, both of which have, currently, almost no political support.

https://hbr.org/2015/06/the-great-decoupling

A Solutions

One solution to having so many low-wage jobs is to have open borders immigration, which almost all Democratic politicians now effectively advocate. Bringing in tens of millions of low-skilled people to compete for jobs with low-skilled citizens will have no effect on wages - the law of supply and demand has been repealed in labor markets. What many Democratic politicians used to say 10+ years ago about the wage suppressing effects of massive immigration is no longer true: political correctness has repealed those beliefs.

Just the snark, ma'am.

I haven't heard of any politicians advocating open borders, but if you find an example, let us know. You aught to keep a few things in mind. The first is that the U.S. economy has never been an entirely closed system, and you wouldn't want it to be. Almost all borders are porous, and the ambitions of border control enthusiasts should probably be modest.

The second is that Minnesota really needs immigrants. The natural growth rate is declining and unless we can get some more people, our economy will stagnate and shrink. Rural Minnesota has a lot of dying towns. A few, like Worthington, might be on their last legs if it weren't for an influx of immigrants seeking agriculture and ag processing jobs.

Minnesota also has to compete with other states, and we have a substantial geographical disadvantage. Without substantial foreign immigration, Minnesota will continue to lose seats in Congress, our tax base will shrink, and, as our decline becomes more obvious, it will discourage businesses that pay high wages from starting or expanding here.

Because Minnesota is geographically disadvantaged, we have to grab any assets we can find and use them. Yes, it is more expensive to educate some immigrant groups than others. But that's what we have to do to keep our economy moving.

Reality

No elected politician will outright advocate for open borders; that's too unpopular a position even in most Democratic majority areas. But few Democratic politicians favor enforcing any immigration laws. They oppose strong enforcement of e-verify; they oppose any type of border wall; they oppose ICE raids on employers; they favor sanctuary cities and states; they don't want anyone but criminals deported, in some cases not even criminals.

The very liberal writer John Judis wrote recently about how illegal immigrants have suppressed wages in the meatpacking industry. He noted how those jobs used to pay around $18/hour with good benefits, and they were unionized. When employers started bringing in illegal immigrants - no immigration laws enforced - wages dropped greatly and unions were busted.

Bureau of Labor Statistics data show that at most 4% of illegal immigrants work in agriculture. The other 96% of employed illegals work in "jobs that Americans won't do", except that in all those occupations citizens and legal immigrants are still a majority of the workforce, or were until low-wage illegals took over those jobs. The mainstream media won't disclose those facts, because it's not the emotional, pro-open borders preferred narrative.

We don't need to import people from outside the country to do those jobs. Let market forces and unionization raise wages, and the employees will come. Illegal immigrants cost taxpayers far more in the cost of public benefits than they'll ever pay in taxes.