2017 Olmsted County Economic Indicator Report

By Aron Mozes

INTRODUCTION

The 2017 Olmsted County Economic Indicator Report provides an introductory analysis of the economic state of Olmsted County in Southeastern Minnesota. This report attempts to illustrate the strengths and weaknesses of the Olmsted County economy and compare its relative standing to its neighboring county of Winona, the state of Minnesota, and the United States as a whole. Olmsted County’s strength is the presence of the world-renowned hospital, the Mayo Clinic. The Mayo Clinic is regularly ranked one of the best hospitals in the country. Over 1.3 million patients from around 137 different countries visited the Mayo Clinic just last year [1]. The Mayo Clinic also employs around 34,000 people in Olmsted County, and most of these jobs are in the high-quality healthcare services sector [1]. The Mayo Clinic is continuing to expand its influence with the ambitious Destination Medical Center (DMC) project. The DMC project aims to double the number of Mayo Clinic employees and improve the infrastructure of the largest city in Olmsted County, Rochester. The Mayo Clinic dominates the economic landscape of Olmsted County. However, there are other underlying economic and social factors worthy of examination.

INCOME

The first method of measuring economic well-being was to calculate the per capita personal income growth index [2]. The statistic was indexed to ensure a comparison could be made between Olmsted County, Winona County, the State of Minnesota, and the United States. Winona County was chosen for comparison because it is adjacent to Olmsted County and has comparable population numbers.

Winona County also has two four-year universities that can serve as a proxy for the academic center of Olmsted County – the Mayo Clinic. The two universities, St. Mary’s and Winona State, serve as weak proxies for the academic and healthcare influence of the Mayo Clinic. Winona County has the third highest population numbers in Southeastern Minnesota behind Olmsted and Rice County. Rice County and Winona County are almost identical in terms of population and number of higher education institutions. Swapping out Winona County for Rice County would yield almost identical results. Due to the presence of the unique Mayo Clinic, any county comparison will yield favorable results for Olmsted County. This measure is meant to draw attention to the economic advantages enjoyed by Olmsted compared to the surrounding counties.

Per capita personal income was measured over the time period of 1970 to 2015. The fastest growth in per capita personal income, during this time period, was observed in Olmsted County, followed by Minnesota, the U.S., and finally Winona County [3]. This divergence in growth of per capita personal income is also observed when comparing the median household income of the four areas. For median household income, only data from 1990 to 2015 is available, but the same trends hold during this period. Although per capita personal income and median household income are not considered a complete barometer of the economic health of a community, the figures do provide valuable preliminary information. The data seems to point to the relative success of Olmsted County compared to Winona County [3]. Olmsted County’s per capita personal income has grown slightly faster than the state of Minnesota as a whole, but both exhibit a similar growth in the value of median household income [4]. Both Olmsted County and Minnesota are above the U.S. average growth for per capita personal income and average median household income. The presence of the Mayo Clinic is a significant factor in the high income seen individually and in households in Olmsted County [5]. Winona County, despite the presence of two universities, is simply not in the same type of economic bracket as Olmsted. The State of Minnesota, with its highly educated and healthy workforce, is not surprisingly outpacing the national average.

INCOME DISTRIBUTION

Income distribution is a critical part of analyzing the economic sustainability of a community. A high level of income inequality can cripple economic development. A high level of income inequality is also strongly correlated with an inequitable society. One of the measures of economic inequality is the Gini coefficient. The Gini coefficient is a rudimentary measure of economic inequality, but it can serve as a basic overview of the economic equity of a region. It is a measure of inequality of distribution and is defined as a ratio with values between 0 and 1. A value of 0 corresponds to perfect income equality and a value of 1 corresponds to perfect income inequality [6]. The lower the Gini coefficient, the more equal the society. For the United States, the Gini coefficient is 0.47 and for the State of Minnesota it is 0.44 [4]. Minnesota has the fifteenth lowest Gini coefficient in the country. For Olmsted County, the Gini coefficient is much higher at 0.51 [7].

The presence of significant economic inequality can be explained partly by the Mayo Clinic being the predominant employer in the county. Residents of Olmsted County who are not employees of the Mayo Clinic may see their incomes lag behind compared to Mayo Clinic employees. However, the sole presence of the Mayo Clinic as the dominant employer does not provide a sufficient explanation for the high Gini coefficient observed. Another possible explanation could be the presence of significant levels of racial income disparity. In Olmsted County, 85.5% of the population identify as Caucasian, 5.8% as African-American, and 6.2% as Asian, with the remainder 2.5% identifying as part of some other ethnic group [9] It is also evident that the city of Rochester enjoys relative prosperity in Olmsted County compared to other smaller cities such as Stewartville [10]. The presence of Rochester as the hub of prosperity, due to its size and the presence of the Mayo Clinic, could contribute to the income inequality observed in Olmsted County. A final explanation is that the data set used to calculate the Gini coefficient is not robust. Despite these hypotheses, the relatively high Gini coefficient is an issue that Olmsted County needs to address.

The last data set in this section deals with the percentage of people living in poverty in Olmsted County. Olmsted County, with 9.8% of its people living in poverty, is well below the national average of 15.5% [11]. Despite a relatively high Gini coefficient, there is not a large percentage of people living in poverty in Olmsted County. These two data sets appear to contradict one another, and it calls into question the usefulness of the Gini coefficient calculations for Olmsted County. Another interesting point is the trend line, which shows that for all regions, the percentage of people living in poverty has gradually increased across the U.S. since 1990. The long-term increases in poverty coupled with the recent revelations of a possible increase in the nationwide mortality rate are two national problems that will have to be addressed in the near future [12]. The extent of this report does not cover the reasons or remedies for the aforementioned problems, but the increase in poverty will remain a pressing dilemma for community developers across the U.S.

POPULATION GROWTH

The data shows that Olmsted County outpaced Winona County, Minnesota, and the U.S. in terms of indexed population growth during the time period of 1970-2015 [13]. The population growth observed in Olmsted County in this time frame is contextually substantial. The indexed population growth of the U.S. increased from a base of 100 in 1970 to 158 in 2015. Olmsted County’s population increased from the same base of 100 in 1970 to 182 in 2015 [13]. The population growth of Minnesota and Winona County were lower than the U.S. during this time period. The difference in population growth between the counties of Olmsted and Winona illustrate the impact of the Mayo Clinic. The presence of the Mayo Clinic, and its ever-expanding influence, has had a tremendous impact on the population growth of Olmsted County over the past forty-five years. This effect has been predominantly encouraged via large-scale job creation. The lack of population growth in Winona County compared to Olmsted supports this crucial distinction.

Furthermore, with the introduction of the ambitious Destination Medical Center, the population of Olmsted County will continue to grow. It is estimated that the Destination Medical Center will directly lead to an increase of 26,800-32,200 jobs in the county [14]. With the population of Olmsted County being 153,102 in 2016, this new influx of jobs will conservatively lead to an 18% increase in the population of Olmsted County over the next decade [9]. With the predicted increase in population, the local government of Olmsted County will have to enact strong policies of sustainable and equitable development. These policies include increases in affordable housing, continued funding of local schools, and promotion of new businesses, among many other policies.

EMPLOYMENT

The employment of Olmsted County is unsurprisingly dominated by the Mayo Clinic and the health industry, but there are other employment sectors that drive the economy of the county. As shown by the graph, employment growth in Olmsted County easily outpaced the national average during this time [15]. In comparison, Winona County was at the national average during this time period, but has clearly struggled to recover following the Great Recession of 2008. The significant difference between employment growth between Olmsted and Winona typifies the importance of an anchor institution such as the Mayo Clinic. Olmsted County also exhibited a clear drop-off in employment growth from 2007-2010 during the Great Recession [15]. However, due to the presence of the anchor institution, the recovery was much quicker for Olmsted than for Winona County, Minnesota, and the rest of the U.S.

The unemployment rate is another indicator of the insulating economic effects of the Mayo Clinic. In 2007, the unemployment rate increased nationwide following the worst economic crisis since the Great Depression, but the differences in unemployment between Olmsted County and the national average were stark. Between the years of 2007-2010, the national unemployment rate increased from 4.6% to 9.6% while Olmsted County harbored an increase from 3.4% to 5.9% [16]. The unemployment rate increased by 2.5% in Olmsted but more than doubled nationwide. Winona County and Minnesota saw their unemployment rate rise more than Olmsted County but less than the national average [16]. The story of this data set is once again in the superlative economic performance of Olmsted County when compared to the national average. Although Olmsted County was also negatively impacted by the Great Recession, the effect was significantly less when compared to other parts of the country. The Mayo Clinic acts as a sort of buffer for economic downturns. The fact that the unemployment rate of Olmsted County never crossed the 6% threshold is incredible when compared to the double-digit unemployment rates observed in large swaths of the country following the 2007 financial meltdown.

LOCATION QUOTIENTS

A location quotient (LQ) is a statistic that measures a region’s industrial specialization relative to a larger geographic unit. For example, an LQ of 1.0 in construction means that the region and the nation are equally specialized in construction. An LQ greater than 1.0 means the region is more specialized in construction and an LQ less than 1.0 means the region is less specialized in construction than the nation [17]. The LQ for education and health services was unsurprisingly the statistical outlier for Olmsted County. Though the county also exhibits low location quotients for both the financial activities and professional business activities sectors. The only other LQ that is below 0.5 is the natural resources and mining sector [18]. The low location quotients for the natural resources and mining sector is explained by the complete lack of mining or forestry industry in the predominantly metropolitan area of Olmsted County. The low location quotients for the financial and business sectors highlight the potential opportunity for new businesses in the county.

CONCLUSION

The average income will likely continue to rise in Olmsted, especially considering the new jobs created by the DMC. Moving forward, the income distribution of Olmsted County is an area of concern. With the influx of additional prosperity from the DMC, elected officials, city planners, and community organizers will have to ensure the influx of new income is not highly concentrated in too few households. A policy recommendation for the county of Olmsted is to begin preparing policies to combat income inequality. According to the data, rising income inequality will be a significant issue for the county in the future.

Olmsted County can also do a better job to encourage business growth. Business growth has been slow and steady in the county the last two decades. A recommendation would be for the county board to develop more entrepreneurial programs for potential business owners. With the positive externalities generated by the Mayo Clinic, there are a number of opportunities for business owners to capitalize on. These externalities can include research and development, mentorship programs, and public-private partnerships. The poverty and unemployment rate of the county are both well below the national average and show no signs of increasing in the future. The county has more or less fully recovered from any negative effects caused by the Great Recession. The individual industries, which dominate the economic landscape of the county, will remain the service providing and education and health services sectors. In general, the economy of Olmsted County is reliant on the Mayo Clinic. With the introduction of the DMC, this dependence will only continue to increase. Despite the increasing demand for healthcare, there is some risk of the county being dominated by a single employer. The importance of Olmsted diversifying its employment base will be tested with the introduction of the DMC. Despite a couple of policy recommendations, Olmsted County is one of the most vibrant and economically well-off counties in Minnesota and in the broader U.S. The presence of the Mayo Clinic has been a game changer, and county developers should continue to press this competitive advantage with the revolutionary DMC project.

REFERENCES

  1. “Mayo Clinic.” Mayo Clinic, Mayo Foundation for Medical Education and Research, 2017, www.mayoclinic.org/.
  2. Federal Bureau of Labor Statistics. (2015). 2015 Labor force data. [Data file and code book]. Retrieved from https://www.bls.gov/
  3. Bureau of Economic Analysis. (2015). Per capita personal income. [Data file and code book]. Retrieved from https://www.bea.gov/iTable/index_regional.cfm
  4. Federal Reserve Bank of St. Louis. (2015). Median household income data. [Data file and code book]. Retrieved from https://fred.stlouisfed.org/search?st=Olmsted+county
  5. Anastasijevic, Duska. “Mayo Clinic Contributes $28 Billion to US Economy, Creates More than 167,000 Jobs Nationwide.” Mayo Clinic, Mayo Foundation for Medical Education and Research, 28 Aug. 2017.
  6. Lamb, Evelyn. “Ask Gini: How to Measure Inequality.” Scientific American, 12 Nov. 2012.
  7. Sommeiller, Estelle, et al. “Income Inequality in the U.S. by State, Metropolitan Area, and County.” Economic Policy Institute, 16 June 2016
  8. Data USA. (2015). [Bar graph showing wage distribution in Olmsted County, MN]. Retrieved from https://datausa.io/profile/geo/olmsted-county-mn/
  9. US Census Bureau. (2015). Demographic breakdown of Olmsted County. [Percentage breakdown]. Retrieved from https://www.census.gov/quickfacts/fact/table/olmstedcountyminnesota/PST045216
  10. “Stewartville, MN.” Data USA, 2017, datausa.io/profile/geo/stewartville-mn/.
  11. Federal Reserve Bank of St. Louis (2015). Percentage of people living in poverty data. [Data file and code book]. Retrieved from https://fred.stlouisfed.org/search?st=Olmsted+county
  12. Tavernise, Sabrina. “First Rise in U.S. Death Rate in Years Surprises Experts.” The New York Times, The New York Times, 1 June 2016.
  13. Federal Reserve Bank of St. Louis (2015). Population growth data. [Data file and code book]. Retrieved from https://fred.stlouisfed.org/search?st=Olmsted+county
  14. “What Is DMC?” Destination Medical Center, 2017.
  15. Federal Reserve Bank of St. Louis (2015). Employment growth data. [Data file and code book]. Retrieved from https://fred.stlouisfed.org/search?st=Olmsted+county
  16. Federal Reserve Bank of St. Louis (2015). Unemployment rate data. [Data file and code book]. Retrieved from https://fred.stlouisfed.org/search?st=Olmsted+county
  17. US Department of Commerce, BEA, Bureau of Economic Analysis. “Bureau of Economic Analysis.” What Are Location Quotients (LQs)?, 2017
  18. Federal Bureau of Labor Statistics. (2015). 2015 Employment Location Quotient data. [Data file and code book]. Retrieved from https://www.bls.gov/

This piece was featured in Volume III Issue I of JUST.

2017-12-12T23:53:48+00:00 December 14th, 2017|