What’s the ‘X-Factor’ that helps Minnesota thrive?

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Minnesota and its neighbors pursue very different economic policies. On the Tax Foundation’s 2019 State Business Tax Climate Index, for example, Minnesota ranked 43rd best among the states, while North Dakota was 17th and South Dakota was third. Wisconsin came in at 32nd and Iowa at 45th.

And yet, these five states experience quite similar, and strong, employment ratios (the share of the population actually employed). In 2019, Minnesota ranked fourth on this metric, while Wisconsin ranked 13th, South Dakota sixth, Iowa second and North Dakota first.

Levels of employment are linked, in turn, with economic well-being, as measured by median household incomes: If you have more people in a household who are working you can expect higher income for that household.

So, clearly something besides state economic policy drives employment. Identifying that “X-Factor” is important for understanding variations in economic well-being across states.

A report titled “The Geography of Social Capital in America” produced by the Social Capital Project (SCP) offers a plausible candidate for the X-Factor role. It identifies “social capital” — which one of its chief theorists, political scientist Robert D. Putnam (author of “Bowling Alone”) defines as “connections among individuals — social networks and the norms of reciprocity and trustworthiness that arise from them” — as being linked with employment at both the state and county level.

Minnesota ranks second among states for social capital, and its neighbors rank similarly high: Wisconsin third, and Iowa, South Dakota and North Dakota ninth, 10th and 11th, respectively.

In my new report “The X-Factor? Social capital and economic well-being: A quantitative analysis” I explore the link between the SCP’s index of social capital and economic well-being. At the county level there are three subindices that are both statistically significant and positively linked to economic well-being: family unity, institutional health and community health. Together, variations in these elements of social capital explain 55% of the variation in median household income across 2,897 counties.

The strongest link is found with family unity. If the level of family unity in St. Louis County rose to the level of nearby Carlton County, we could expect to see the median household income rise by $5,080.

What does the SCP mean by family unity? Three indicators make up this subindex: The percentage of births to unmarried women, the percentage of women currently married and the percentage of children living with a single parent. Combining these indicators, Minnesota ranks fifth highest out of 50 states and the District of Columbia for family unity.

Minnesotans may vote “progressively” but they live relatively conservatively, and this accounts for some part of their comparatively high median household income.

There is variation within the state. While Carver County ranks in the top 10% of counties across the United States on all three family unity subindices, Mahnomen County ranks in the lowest 10% on two of them — births to unmarried women and children living with single parent. Meanwhile, Carver County has the second highest median household income in Minnesota. Mahnomen County ranks last. Our research suggests that some part of this disparity is attributable to levels of family unity.

The Center of the American Experiment has been researching the chain from family fragmentation — the opposite of family unity — to lower economic well-being since its foundation in 1990. With the best will in the world, single parents face deficits of both money and time which they can “invest” in their children. Where this fragmentation is greater, among minorities and those with less education and lower incomes, the deficits are similarly greater, compounding existing problems. There is currently a resurgence of interest in the subject, with recent books by nonconservative scholars Richard Reeves and Melissa Kearney sounding similar warnings.

What can public policy do about it, if anything? Can it unify families, the ultimate “social network”? Or can it merely try to ameliorate the consequences of fragmentation? While Minnesota is, happily, well stocked with social capital, these are nevertheless some of the most pressing questions in social and economic policy facing the United States today.

John Phelan is an economist at the Center of the American Experiment.