In 2023, Minnesota’s per capita GDP dropped below that of the United States for the first time

In our 2021 report “The State of Minnesota’s Economy: 2020 — A focus on economic growth,” we wrote:

What matters for economic welfare is per capita income. This is a general measure of welfare, telling us how much per person is available to be consumed, invested, or put to some other use. If we want to increase economic welfare, we should pursue policies that increase per capita incomes. A doubling of total [Gross Domestic Product] GDP, if it is matched by a doubling of the population, will leave the average member of the population no better off. For example, China’s GDP in 2017, $23.3 trillion, was 8.2 times larger than that of the United Kingdom, $2.9 trillion, but average living standards are much higher in the U.K. because China’s population (1.4 billion) is 21 times larger than that of the U.K. (66 million), so China’s GDP is divided among many more people. As a result, per capita incomes in the U.K. are, on average, 2.6 times higher than in China.

Sadly, Minnesota’s recent record on per capita GDP growth is concerning. In every single year since 2014 per capita GDP in our state has grown more slowly than it has for the United States generally, as Figure 1 shows. In 2000, for example, per capita GDP increased by 5.3% in Minnesota in real, inflation adjusted terms, compared to 2.9% for the United States as a whole, a difference of 2.4 percentage points in Minnesota’s favor. While Minnesota’s real per capita GDP growth rate was higher than that of the United States generally in ten of seventeen years up to and including 2014, it has been below it in each of the nine years since. Over the period since 2014, only Wisconsin can match Minnesota’s record of lagging the national growth rate of GDP per capita in every single year.

Figure 1: Growth of real per capita GDP in Minnesota minus growth of real per capita GDP for the United States, percentage points

As I wrote back in April, “this consistently below-average growth in GDP per capita is eroding the ‘premium’ that Minnesota enjoys on this measure over the United States.” Minnesota has long been able to boast a level of per capita GDP above that of the United States generally, a ‘premium’ for living in the state. In 2004, this premium peaked at $4,973 per Minnesotan, as Figure 2 shows. As recently as 2014 this premium was $4,669. Since 2014, however, this premium has fallen in every single year and was down to just $43 in 2023.

Figure 2: Minnesota’s ‘premium’ in per capita GDP over the United States, $2017

Clearly, if these below average rates of annual real per capita GDP growth continue for much longer, then our level of per capita GDP will dip below the United States’ average for the first time for which there is data available.

In the quarterly data, this has already happened. As Figure 3 shows, in the third quarter of 2023, GDP per capita was lower in Minnesota than it was for the United States generally for the first time for which there is data available. In the 22 quarters for which we can calculate real GDP per capita growth rates, Minnesota lagged the United States in thirteen.

Figure 3: Real GDP per capita, $2017

We at the Center have been tracking this trend for years, referring to our state’s economy as “mediocre” (2016), “lackluster” (2017), “unimpressive” (2018)…you get the picture. As I wrote in April, “Center of the American Experiment has a track record of raising issues which few in our state want to discuss — but cannot, indefinitely, avoid — before anyone else. If you want to know what Minnesotans will be discussing tomorrow, look at what we are discussing today.”

Well, here we are. Around 2014, something happened which set Minnesota’s economy on a lower growth path, in the important per capita terms, relative to that of the United States generally. What was it? Watch this space.