Reformer Radio: Where the economy goes from here

By: - July 16, 2021 10:25 am
steve grove

Minnesota Department of Employment and Economic Development Commissioner Steve Grove in March 2020. Photo by Ricardo Lopez/Minnesota Reformer.

Unemployment in Minnesota has returned to near pre-pandemic lows and labor force participation continues to tick up, but recovery in the economy has been uneven and stunted by a persistent labor shortage.

On this week’s Reformer Radio, host Max Nesterak’s talks with Minnesota Department of Employment and Economic Development Commissioner Steve Grove about the state of the economy and its future.

Grove left an executive-level job at Google to head DEED under Gov. Tim Walz in his home state. About a year later, the pandemic led to massive unemployment and disruptions across the economy, requiring his agency to play a key role in the state’s COVID-19 response through distributing benefits to hundreds of thousands of Minnesotans.

Now as Minnesota reopens, Grove hopes to accelerate the recovery by helping people start new businesses. He explains how the state can support small business growth and reflects on how big tech companies like his former employer, which Minnesota is suing over alleged anti-competitive practices, affects entrepreneurship.

Here are three takeaways from the podcast:

Unemployment is reaching pre-pandemic lows

Minnesota’s unemployment rate is down to 4% from a high of 11% in May 2020, which is nearing the pre-pandemic rate of 3.3% in February 2020. It’s a good sign the economy is recovering, but that low rate can disguise how many people stopped looking for work.

The data point Grove says he’s focused on is the labor force participation rate — how many people are employed or actively looking for work. That figure is also signaling a strong recovery. In June, Minnesota’s rate inched up to 68%, nearing pre-pandemic rates north of 70%. Minnesota trends significantly higher than the national rate of 61%.

“As that number goes up, it’s going to show us that consumer confidence is back, worker confidence is back, people are getting back into the workforce,” Grove said.

To encourage more people to get into the workforce, Grove’s agency recently launched a new program called Good Jobs Now that moves beyond the brick-and-mortar job centers of yore.

“If we’re just sitting inside of a building and waiting for workers to come to us, we’re not being as proactive as we need to be,” Grove said. “So we’re calling thousands of Minnesotans every week, for the first time ever, who are on unemployment insurance and directing them to job opportunities that exist in the economy or to training opportunities to transition industries.”

Grove says they focus on connecting people with jobs that pay a “family sustaining wage,” which means pointing people toward training opportunities and switching industries.

Minnesota won’t end extra federal unemployment benefits 

While many workers are struggling to find good-paying jobs, employers may be having an even harder time finding workers.

The persistent labor shortage has slowed down the recovery in certain industries, namely restaurants and retail. It has pushed wages up in low-paying jobs, which haven’t seen meaningful increases in years. Grove says that’s a good thing.

“This moment we’re having, which is an unprecedented moment of worker power, is good for the economy overall,” Grove said. “When you raise wages, you raise economic mobility, you raise opportunity, you grow a stronger middle class.”

Generous federal unemployment benefits have drawn the ire of some business owners and become a target of Republican politicians, who say the extra $300 a week from the federal government is incentivizing people to sit at home. Already, 25 states have decided to reject the extra unemployment benefits, but Grove says Minnesota won’t eliminate the extra benefit before it expires on Sept. 6.

“I’m not here to say that it isn’t a factor for some workers. I know that it is. But for many others, it isn’t. … There’s a host of reasons at play,” Grove said. “It’s also important to remember that those federal benefits bring in over $100 million a week to the Minnesota economy that those workers then spend in the economy around us.”

Minnesota saw a small business boom during the pandemic 

One bright spot of the COVID-19 pandemic’s effect on the economy is the surge in new business formations across the country. Minnesota saw a 31% increase in new businesses during the pandemic compared to a similar time frame in 2019.

Minnesota is typically ranked low in entrepreneurship, but Grove said the businesses that do start here often succeed.

“We’re the number one state in the country for business survivability, so if you start a business in Minnesota, it’s more likely to be around in five years from now than in any other state,” Grove said. “We just think we need more swings at the pitch.”

Grove said he hopes to see the entrepreneurial trend continue and pointed to two state programs aimed at encouraging new businesses: Launch Minnesota, which provides matching seed money for start-ups, and the Angel tax credit, which offers tax breaks to venture capital.

Minnesota still has a lot of growth to do following the pandemic, and job growth is driven by new small businesses. The state has only regained about 245,800 of the 416,300 jobs lost between February and April 2020.

Long-term, Grove says the state needs to focus on racial equity in order to remain competitive.

“It’s not just a moral imperative because it is, but it’s also an economic imperative,” Grove said. “Seventy percent of the growth of our labor force in the next 10 years is going to be people of color.”

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Max Nesterak
Max Nesterak

Max Nesterak is the deputy editor of the Reformer and reports on labor and housing. Most recently he was an associate producer for Minnesota Public Radio after a stint at NPR. He also co-founded the Behavioral Scientist and was a Fulbright Scholar to Berlin, Germany.