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A Closer Look at Minnesota’s Underperformance in Attracting New Residents Not only are Minnesota’s relative rates of in-migration among the worst in the nation, the average income per new state arrival over the past several years has plummeted relative to other states. Something’s happening here What it is ain’t exactly clear Stills & Young Economic Demography Minnesotans have become a lot more interested and attuned to state migration trends for some understandable reasons. The state is facing some stiff demographic headwinds with long term implications for workforce availability, access to needed skills, and economic growth. Migration is a complex piece of a complex state economy puzzle. The most frequently expressed concern is residents leaving the state. Some of this may be rooted in a recent attention-getting but faulty interpretation of IRS data that erroneously states nearly $5 billion dollars of potential taxable income left the state over the past three years. (See endnote 1 for a full explanation why this is interpretation is incorrect.) Concern about state out-migration is certainly understandable, especially today given demographic trends and recent policy changes. With chronically tight labor markets, and Minnesota now more reliant on individual income taxation -- and on high-income earners for those income tax revenues -- than at any time in state history, it’s an issue that deserves close monitoring. However, as we have discussed before, breaking down state net migration into its two components, in-migration and out-migration indicates Minnesota actually has done a respectable job compared to most other states holding onto its citizens. What makes our net migration look bad -- at least to date – is relative rates of migration into the state that are among the worst in the nation. The most recent data release from Census Bureau’s State-to-State Migration Flows for 2023 again provides more evidence of this. According to this data, Minnesota had an estimated net loss of 8,689 residents 2 from state-to-state migration, 10th worst in the nation. But breaking this net amount into the inflow and outflow totals and normalizing both relative to the size of state populations, once again the same story emerges:
To put it simply, Minnesota’s migration message might be reflected in a James Carville inspired snowclone, “It’s the in-migration, stupid.” As a result, it’s worth digging a little deeper and taking a closer look at how the incomes of those that do come to Minnesota compares with the incomes of those moving to other states.3 Here is how it looked for tax returns filed in 2012:
It’s what one might expect from a high-income state like Minnesota with job opportunities reflecting relatively higher incomes. New arrivals to Minnesota reported above average adjusted gross incomes across all workforce ages compared to most of the rest of the nation. Only Minnesota’s winter-tolerant arriving retirees had incomes below the average of their state-to state migrating counterparts across the country. Fast forward to the latest available data from tax returns filed in 2022, and things have changed rather dramatically:
Across the prime age workforce (26-54), income per in-migrant to Minnesota is now significantly lower than the average of the 50 states, with the state’s 35-44 and 45-54 cohort rank dropping a remarkable 12th to 29th and 10th to 33rd respectively. Was filing year 2022 some kind of one-time COVID anomaly? Here is an “all ages” analysis covering this entire ten-year period:
As these results show, the decline begins to emerge around the middle of the last decade and has picked up steam since. The $25,221 increase in AGI growth per new arrival to Minnesota over this ten-year period was $14,768 less than the average experience of the 50 states, placing Minnesota 38th in nation and an anemic 45th on a percentage change basis from the state’s 2012 baseline. Relative conditions of state labor markets and state cost of living considerations may be influencing these results to some extent. Moreover, simple averages can be tricky to generate inferences from, especially dealing with a very small population subset having a lot of potential variance. But one plausible contributing explanation to consider is that the state is no longer generating the same quantity and quality of job opportunities compared to other states. Findings like these could be expected when capital investment and business expansion within Minnesota is not keeping pace with what is happening elsewhere. There is some data to support this. According to fDI Markets, from 2018-2023 state-to-state business investment projects out of Minnesota exceeded those coming into Minnesota by 70% representing a difference of over 10,000 in the number of jobs created. In 2023 Minnesota ranked 8th out of 12 states in the Midwest region in both total projects and projects per capita. The idea that nearly $5 billion of taxable income has been lost due to state outmigration is incorrect, but that figure can be more accurately restated and presented in different way. Over the last three years, people who left Minnesota for other states reported nearly $5 billion more in income in their first year of new residency than the people who came to live in Minnesota did in their first year of residence. That finding might give some pause. Combined with the slow but steady “drip” of net-outmigration, it suggests better economic opportunities are being found and economic interests are being better served elsewhere. Economic success demands a climate of both foundational competitiveness (infrastructure, education, quality of life, etc.) and business attractiveness. There are risks to focusing on the former to the exclusion and neglect of the latter. Endnotes 1) Conservative economist and migration expert Lyman Stone explains why the AGI reported with migration is not equivalent to a “migration of money”: “It is common for migration commentators to treat the AGI of IRS SOI migrants as “migration of money.” This is an egregiously wrong use of the data. The IRS SOI user guide makes clear that this is not a viable interpretation of the data, and thus those who read the data this way have either failed to perform the most basic due diligence by looking at the manual, or else actively mislead their readers. First, the AGI associated with a given migrant return is the total AGI for the filer after migration. It is not how much money they earned prior to departure, it is how much money they earned after arrival (although of course, AGI is not quite equivalent to earnings, a point only worth belaboring for tax experts). Thus, the AGI reported has no necessary connection to the departure state; it cannot be considered an “outflow.” Second, many migrants experience job transitions, moving out of one job to another. This is one of the most common reasons for migration. When a migrant moves from one state to another as a result of a job transition, it is likely that they move from a job that will still exist after their departure, to a job that existed before their arrival. In other words, the AGI they had before departure is likely to more-or-less remain in the previous state (minus transition costs as the employer fills the vacancy), while their new AGI in the arrival state likely existed prior to their arrival (again, minus transition costs related to employment vacancy). Third, insofar as “migration of money” is a real thing, any economist will tell you that it refers to capital mobility. Capital mobility is a radically different phenomenon than labor mobility. Unfortunately, figures on capital mobility within the United States are less available than figures on labor or population mobility, that is, migration. Conflating labor mobility (migration) with capital mobility is entirely incorrect, as anyone who’s taken even basic macroeconomics can explain. Labor migrants may shift their investments alongside migration, especially residential investment if they build a new home, and investment generally may respond to population changes, but the phenomena remain distinct and should not be confused by sloppy terminology...” Some income, such as rental, ownership, Social Security and investment income may indeed “migrate” with migrants. But according to the latest statistics from the IRS, salary and wages constitute nearly two-thirds of state AGI. Given Stone’s first point and recognizing that job transitions are one of the primary reasons for interstate migration, it stands to reason a lot of that cumulative AGI "loss" in SOI migration stats isn't a loss at all. In summary, as Stone states, “labeling the AGI associated with IRS SOI migration as ‘migration of money’ is unjustifiable.” 2) It’s worth recognizing that figures like these are still estimates subject to margins of error and confidence intervals. The technical interpretation of Minnesota’s latest census findings is that there is a 90% probability true net state migration is somewhere between a net loss of 23,292 individuals and a net gain of 5,914 individuals. 3) Plenty of caveats apply as well to these results. Different permutations of exactly when people move, when they file, how they file, filing extensions, and filing status changes during a tax year can have an influence on these reported migration totals. |
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