Minnesota unemployment rate drops to lowest since 1999

Minnesota's unemployment rate fell to 2.7 percent in February, the lowest in 23 years, fueling wage gains and contributing to concerns about persistent inflation. 

The state's worker shortage continues to worsen. Minnesota now has 2.8 job openings for every one unemployed worker, Economic Development Commissioner Steve Grove told reporters at a news conference.

The labor market is tightening even as more people return to the workforce. The state's labor force participation rate -- a statistic that combines the number of employed people with those looking for work -- ticked up to 67.9 percent in February, better than the national average but still lower than before the COVID-19 pandemic.

"The labor force participation rate is ticking up – finally – and it really seems to be across the board," said Oriane Casale, assistant director of Minnesota's Labor Market Information Office.

The state is within reach of its lowest jobless rate on record, 2.5 percent in February 1999. Minnesota's data go back to 1976.

Inflation is outpacing wage gains in Minnesota and elsewhere. Year-over-year inflation was 7.9 percent in February, compared with 7.1 percent average wage growth. In some industries where workers are in the highest demand, such as retail, hospitality and long-term care, wage growth is higher than inflation, state economists said.

"We’re hearing about wage growth but we’re hearing also about employers trying new things: flexible work hours, flexible schedules, child care subsidies, paying for your parking when you’re coming into the office. I’ve even heard about employers giving pet insurance as a new benefit," Grove said. "People are getting creative, and those that are doing new things are seeing new results." 

In 2022, inflation grew faster than wages for the second time in the past decade. The only other year it happened was in 2018, state data indicate. Consumers are paying higher prices for gas, groceries, home heating bills, and housing.

Last week, the Federal Reserve raised its benchmark interest rate from near zero to between 0.25 percent and 0.5 percent, and the Fed has planned six more rate hikes this year to bring inflation under control.

It marks a significant shift from the Fed's strategy in 2021, when economists expected inflation would be transitory as supply chain bottlenecks related to the pandemic were sorted out. But Russia's invasion of Ukraine, additional COVID waves, and strong wage gains have fueled concerns that inflation will persist.

Hospitality industry hit the hardest

At Olive’s Fresh Pizza Bar in Excelsior, on any given night you’ll find both managers waiting tables. Business has been great, but keeping the restaurant staffed is a daily struggle.

"I’m on Zip Recruiter, I’m on Indeed, word of mouth," said manager Tali Larson. "We even run a referral program here for our young kids."

Unlike the majority of Minnesota restaurants, which according to Hospitality Minnesota were reporting lower than normal revenue in the first quarter of this year, Olive’s has benefited from the ease and popularity of pizza during the pandemic.

"There was a point when we were pushed out 3, 3.5, 4 hours every night for takeout," she said.

Business is so good, they decided to open a second location in Edina. The major problem: they can’t find staff.

"There’s tens of thousands who left the industry," said Ben Wogsland of Hospitality Minnesota. "As we’re ramping up for the spring and summer months…folks are very nervous they aren’t going to have the staff to meet the demand."

Month-to-month, hospitality is one of the industries that continually hasn’t increased its workforce in the last year. Wogsland reports that 32,000 employees left the industry during the pandemic and have yet to return.

"We’re really rebuilding the workforce pipeline and its not going to be a quick turnaround," he said.

Larson says they generally employ high school and college students, but many haven’t come back after COVID-19. 

Hospitality Minnesota is working with the legislature to create a free online hospitality training program aimed at attracting young people.  

With the summer rush ahead of them, Larson just hopes they can find enough people to take advantage of the crowds.

"We’ll figure it out. We always do," she said.