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Net Earnings Sources Across Minnesota Counties

by Dave Senf
February 2018

Last year household incomes across Minnesota counties, as estimated by the American Community Survey (ACS), were examined in Review.1 Household income, which is more commonly referred to as money income, is one of two widely used measure of income. Personal income, as estimated by the Bureau of Economic Analysis, is the other commonly used income measure. Its main component, net earnings, is explored in this article by examining net earnings differences across Minnesota counties. Net earnings, like personal income data for counties, is available starting in 1969 but only 2001 - 2016 data are presented here.

Personal income data, unlike the ACS money income data which come from household surveys, are based primarily on administration records, such as income tax and unemployment insurance records.2 Total personal income in Minnesota was $287.3 billion in 2016 or $52,000 per capita. That compares to the 2016 total money income estimate from ACS of $185.7 billion and $34,500 per capita.

The substantial difference between the two incomes measures arises primarily from noncash benefits, such as Medicaid and Medicare, being counted in personal income but not in money income. The ACS money income estimate is designed to exclude transfer payments while personal income calculations include most transfer payments.3

Of interest here is income earned from work which is captured in the BEA's net earnings component of personal income. Net earnings totaled $189.4 billion in 2016, accounting for 65.6 percent of Minnesota's $287.2 billion personal income total that year. Dividends, interest, and rents ($53.3 billion) and personal current transfer receipts ($45.6 billion) are the two other major components that when summed with net earnings yield total state personal income.

The net earnings estimate from the BEA is adjusted to subtract earnings from workers who commute into Minnesota for work and to add earnings by Minnesotans who work outside the state. Minnesota is a net loser when it comes to interstate work related commuting as the adjustment in 2016 was roughly a loss of $1.4 billion in earnings. In other words Minnesota's earnings were reduced by roughly 0.8 percent by residents from other states working in Minnesota and taking their paychecks home.

Work commuting patterns play a much large role in determining net earnings at the county level since there is a lot more intercounty commuting than interstate commuting. Table 1 lists the counties that gain the most and lose the most earnings in percentage terms as a result of workers commuting across county lines. The largest net gainers are counties that form a circle around Hennepin and Ramsey counties in the metro area.

Table 1. Adjustments For Residency/Commuting
Percent Gain in County Earnings
1 Washington 34.6
2 Houston 34.1
3 Sherburne 33.7
4 Chisago 32.8
5 Scott 32.1
6 Wright 31.7
7 Carver 31.5
8 Isanti 31.5
9 Sibley 29.2
10 Dodge 29.1
Minnesota -0.8
Percent Loss in County Earnings
78 Cook -10.4
79 Lyon -11.9
80 Olmsted -13.2
81 Stearns -13.6
82 Stevens -16.4
83 Blue Earth -17.1
84 Wadena -19.2
85 Pennington -24.6
86 Hennepin -27.0
87 Ramsey -30.6
Source : Author's calculations using BEA Personal Income data.

Washington County (Stillwater and Woodbury) leads the state as county earnings increase 34.6 percent from residence working outside the county. Ramsey County (St. Paul) is the biggest loser with 30.6 percent of earnings earned in the county leaking out of the county. Plenty of jobs in Thief River Falls (Pennington), Morris (Stevens), and Marshall (Lyon) relative to the surrounding counties explain the leakage of paychecks earned in those counties to surrounding counties. More than 10 percent of earnings for 48 counties in Minnesota are earned outside the counties. Ten counties see more than 10 percent of earnings transferred out of the county through workers' commuting in from nearby counties.

The wages and salaries and self-employment income components of ACS money income are in theory the same as BEA's net earnings. The 2016 ACS estimates of work related earnings of $152 billion, however, is roughly 20 percent short of the $188.4 billion BEA reported using administration records. Minnesotans apparently make a lot more money than the ACS survey captures. The earnings discrepancy is most likely caused both by underreporting by ACS survey responders and by problems with the survey's methodology.

Table 2 breaks downs Minnesota's 2016 BEA earnings into eight categories that are discussed here and presented graphically at Tableau Public. 4 BEA estimates that within Minnesota workers and self-employed individuals earned $214.6 billion which was 1.9 percent of the $11.3 trillion earned nationwide. Contributions for government social insurance programs like Social Security and Medicare are subtracted as is net earnings by commuters, Adjustment for Residence (see Table 1).

Table 2. Minnesota's 2016 Net Earnings (Income from Work)
Earnings by Source Billions of Dollars Percent of Earnings by Place of Work Earnings Included
Earnings by place of work 214.6 Earnings by place of work- Consists of compensation of employees and proprietors' income.
Less: Contributions for government social insurance 3/ 24.8 11.6 Contributions for government social insurance- Consists of all contributions for government social insurance (by employers, employees, self-employed persons, and by other individuals).
Private nonfarm compensation 164.6 76.7 Consists of compensation of employees in non farm private industries.
State and local government compensation 24.4 11.4 Consists of compensation of employees in state and local government.
Nonfarm proprietors' earnings 19.5 9.1 Non farm proprietors' income with inventory valuation and capital consumption adjustments is the current-production income (including income in kind) of sole proprietorships, partnerships, and tax-exempt cooperatives.
Federal government compensation 3.9 1.8 Consists of compensation of employees in the federal government.
Farm Earnings 2.1 1.0 Farm proprietors' income and farm workers compensation. Farm proprietors' income consists of the income that is received by the sole proprietorships and the partnerships that operate farms. It excludes the income that is received by corporate farms.
Adjustment for residence -1.4 -0.8 An adjustment made to those components of earnings and employee contributions to social insurance programs (income subject to adjustment) that are reported on a place-of-work basis to convert them to a place-of-residence basis reflecting the net flow of income of interarea commuters.
Net earnings by place of residence 188.4 87.8 Consists of earnings by place of work less contributions for government social insurance plus the adjustment for residence.
Source: Bureau of Economic Analysis (BEA) https://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=6#reqid=70&step=24&isuri=1&7022=2&7023=0&7001=42&7090=70

The majority of earnings are generated in the private nonfarm sector where 76.7 percent of all earnings generated in 2016 came from wages and salaries, also known as private nonfarm compensation. Private sector self-employed income accounted for 9.1 percent of earnings, and farm earnings accounted for 1.8 percent. The other 13.2 percent of Minnesota earnings are generated as public sector worker earnings. State and local government pay accounted for 11.4 percent of earnings while federal workers' pay accounts for 1.8 percent of earnings.

Minnesota's per capita net earnings in 2016 was $34,124 which was 9.6 percent higher than the U.S. average. All but seven counties had per capita net earnings below the state average (see Table 3). All of the counties with per capita net earnings above the Minnesota average were metropolitan statistics area counties except for Kittson County. The counties with the lowest per capita earnings are concentrated in the north central part of the state.

Table 3. 2016 Per Capita Net Earnings
1 Carver 49,485
2 Hennepin 44,384
3 Washington 42,479
4 Scott 41,227
5 Dakota 39,557
6 Olmsted 36,850
7 Kittson 35,171
Minnesota 34,124
8 Wright 33,430
9 Wilkin 33,355
10 Kandiyohi 32,418
78 Todd 20,296
79 Beltrami 20,188
80 Hubbard 20,064
81 Itasca 19,314
82 Cass 19,024
83 Pine 18,686
84 Faribault 18,397
85 Koochiching 18,187
86 Wadena 17,811
87 Mahnomen 16,957
Source : Author's calculations using BEA Personal Income data.

Kittson County borders North Dakota and Canada and is one of the state's least populated counties. The county has lost 4.8 percent of its population since 2010 while farm earnings have been strong since 2011. In 2011 the county ranked 21st in per capita earnings but zoomed up to second in 2013 as farm earnings tripled. About 97 percent of the ag production in Kittson County is crops such as spring wheat and sugar beets. Kittson County is the most farm dependent county in the state when measured by percent of 2016 county net earnings generated by ag production (see Table 4).

Table 4. 2016 Farm Earnings (Million Dollars)
1 Renville 100.9
2 Polk 97.0
3 Stearns 96.5
4 Murray 72.9
5 Redwood 69.3
6 Rock 67.8
7 Nobles 65.8
8 Kandiyohi 65.4
9 Lac qui Parle 62.3
10 Stevens 61.7
Farm Earnings as a Percent of County Net Earnings
78 Kittson 32.3
79 Pipestone 30.1
80 Norman 28.4
81 Big Stone 27.0
82 Cottonwood 25.1
83 Kittson 24.3
84 Grant 22.0
85 Aitkin 19.6
86 Lac qui Parle 19.6
87 Traverse 18.9
Source : Author's calculations using BEA Personal Income data.

State and local government compensation as a percent of net earnings averages 12.9 across Minnesota. State and local government compensation consists of the paychecks to public employees such as public school teachers, county highway workers, state patrol officers, and faculty and staff at Minnesota public community and tech colleges, four-year colleges, and the University. Also included in local government compensation is the pay received by employees of American Indian tribal governments including casino employees.

That is why Mahnomen County leads the state in percent of net earnings arising from state and local government compensation. The entire county is within the White Earth Indian Reservation, and its workforce is the main reason 62.5 percent of 2016 net earnings in Mahnomen County are generated in the form of state and local government compensation. American Indian reservations are located in six of the top 10 state and local government compensation dependent counties (see Table 5). Ramsey County with its concentration of state employees at the State Capital and surrounding state buildings also ranks high when it comes to percent of net earnings accounted for by state and local government compensation.

Table 5. State and Local Government Compensation as a Percent of County Net Earnings
1 Mahnomen 62.5
2 Carlton 33.2
3 Beltrami 31.9
4 Cass 31.6
5 Cook 31.5
6 Mille Lacs 30.5
7 Wadena 26.9
8 Ramsey 26.3
9 Pine 26.1
10 Big Stone 23.1
Minnesota 12.9
78 Anoka 8.9
79 Benton 8.8
80 Chisago 8.8
81 Sibley 8.5
82 Dakota 7.8
83 Le Sueur 7.7
84 Wright 7.7
85 Lincoln 7.3
86 Washington 6.6
87 Carver 5.9
Source : Author's calculations using BEA Personal Income data.

Figure 1 provides a sample, using Stearns County, of the county-level data that are available to examine graphically. The data behind the various graphs available can also be downloaded. In addition to actual earnings data, the data can be viewed on a per capita, percent of Minnesota total, and percent of county total. The most important source of earnings in Stearns County is by far private nonfarm compensation.5 The Great Recession's effect on private nonfarm compensation can be seen by the decline in 2009. Nonfarm private compensation is the leading earnings source in all counties except Mahnomen as discussed above.

Figure 1. Stearns County Net Earnings by Source, 2001-2016

State and local government compensation is the second largest earnings source in Stearns County in part from St. Cloud State University's payroll. State and local payrolls are the second largest source of earnings for 28 counties. A sizable amount of earnings become contributions to government social programs (Social Security and Medicare) and is subtracted in deriving county net earnings. Nonfarm proprietors' earnings ranks fourth in Stearns County but is the second largest earnings source in 11 counties. All of these counties are rural counties where a greater share of employment is self-employment. Federal government compensation is the smallest piece of the earning pie in most counties. Koochiching and Cook counties are places in the state where the federal government payroll contribution to earnings is significant.

Stearns County, as shown in Table 3, had farm earnings of $96.5 million in 2016. That was the third highest county farm earnings, but unlike most other counties with large farm earnings Stearns County has a diverse economy centered in St. Cloud. Farm earnings in Stearns County, as is true in all counties, is highly variable. Farm earnings in the county, just like statewide, spiked between 2010 and 2014, helping to offset some of the economic damage in other sectors during the Great Recession. Farm prices, however, have declined over the last few years as have farm earnings.

Knowing the sources of income in a county is one of the keys to understanding what economic engines drive a county's economy. The county earnings reviewed here represent a large share of income in a county and provide insights on how a county's economy is powered and how the sources of fuel have changed overtime.

1 Household Income Sources Across Minnesota Counties, Minnesota Employment Review, August 2017 - https://mn.gov/deed/newscenter/publications/review/august-2017/household-income-counties.jsp.

2 For more information on personal income sources see - https://www.bea.gov/regional/pdf/lapi2016.pdf. State and county level personal income data can be downloaded from https://www.bea.gov/regional/index.htm.

3 For more information on alternative measures of income see - https://www.bea.gov/about/pdf/AlternativemeasuresHHincomeFESAC121404.pdf

4 County level earnings data are graphically presented four ways. First by actual value, then as a percent of state total, percent of total county earnings, and on a per capita basis. See – https://public.tableau.com/profile/magda.olson#!/vizhome/NetEarningsMinnesotaCounties/Sheet1?publish=yes

5 Private compensation is available at industry level from BEA.

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