In a K-shaped economy, is there anything Minnesota can do to bridge widening gaps?

Minnesota’s economy is diverging, with growth largely benefiting those who are already well off while the rest of the state slips backward.

The divide is real – not just vibes – economists say, but it’s also not inevitable. While much of the state’s economy hinges on federal policy or global trends, state officials do have levers they could pull to deter Minnesota’s two economic trajectories from moving apart.

Improve access to all types of housing

Turning cost-burdened renters into stable, comfortable renters, and making it possible for more renters to buy homes is the single most impactful change to bend the diverging arms of the “K” back towards each other, economists said.

“If I could magically build a bunch of lower-income housing spread throughout the Twin Cities, that’s what I’d like to do,” Tyler Schipper, associate professor of economics at St. Thomas University. “Safe, affordable, diffuse housing would help us address a plethora of other social problems.” 

Related: How’s Minnesota’s economy? The answer depends on your income bracket

Across the income spectrum, Minnesota is roughly 100,000 total housing units short of demand, according to Nick Erickson, senior director for housing policy at building industry group Housing First Minnesota. The shortage strains nearly every other part of the economy, from family budgets to labor mobility.

The burden is most acute among renters. Research from the Minnesota Housing Partnership shows that roughly a quarter of Minnesota renters are severely cost burdened, spending more than half their income on housing. 

Address racial disparities in home ownership

Black Minnesotans are especially burdened by rent. When rent consumes more than half of a paycheck, households lose the ability to save, move or withstand emergency expenses — the very buffers economists say separate the upper and lower branches of the current economy.

Economists repeatedly highlighted a second dimension: Minnesota’s acute racial gap in homeownership, one of the widest in the nation. Data from Harvard’s Joint Center for Housing Studies shows that while more than 76% of white Minnesotans own homes, roughly 24% of Black Minnesotans do, with other racial groups falling in between these two extremes.

The result is a feedback loop. Families that own homes accumulate wealth and pass it down — whether as down-payment help, tuition support or emergency liquidity. Families that rent often fall further behind, especially as prices climb.

Economists argue that supply remains the most binding constraint. Encouraging more multifamily housing, enabling development near transit and reducing barriers to construction remain essential steps, they say. The specifics of how to do that — zoning reforms, financing tools, political compromises — will determine whether the state can bend the trajectory of its housing market toward affordability.

Invest in ‘middle-skill’ workforce training

Minnesota’s labor market presents a paradox: historically low unemployment rates alongside rising underemployment and longer job searches. Economists describe a situation where workers at the bottom and middle of the labor market face longer waits, fewer lateral opportunities and more difficulty moving into stable, higher-paying roles.

Economists cited workforce training and development as a critical way that the state can address this disconnect.

The Department of Employment and Economic Development has several programs that focus on building clearer, more navigable pathways into high-demand, middle-skill jobs — the kinds of roles that once reliably moved Minnesotans into the middle class.

One example is DEED’s Adult Career Pathways suite of programs, which funds local organizations to deliver career training paired with support services, helping adults prepare for employment in in-demand fields. Another is the Drive for Five Workforce Initiative, which directs state funding toward five sectors expected to define the next decade of employment: technology, industry and manufacturing, education, health care and trades such as transportation and construction. The goal is to match workers to high-value careers that are expected to grow — not shrink — as the economy evolves.

Related: Not just vibes: These economic indicators raise concerns about Minnesota’s economy

The state has also expanded Transformative Workforce Programs, which include sector-based training, wraparound services, paid work experience and partnerships with employers who commit to hiring graduates. These programs disproportionately serve lower-income Minnesotans, new Americans and workers lacking a four-year degree — groups that economists say are most vulnerable in a bifurcated labor market.

To improve job search outcomes, DEED said it is investing in more data tools for both workers and employers through its Labor Market Information office, which publishes regional job vacancy data, wage trends, industry reports and future-of-work analyses. The agency says these tools are increasingly being deployed in classrooms, workforce centers and employer meetings statewide. It also hosts trainings in using this data and makes its regional labor market analysts available for presentations to those who request it.

Several of the economic development tools directed at businesses can support high-skill employers. The Minnesota Investment Fund (MIF) provides financing to companies creating or retaining high-paying jobs; the Job Creation Fund (JCF) offers performance-based rebates tied to hiring and capital investment; and the new Forward Fund focuses on expanding capacity in critical sectors ranging from biosciences to advanced manufacturing.

State economic development officials say these programs can help Minnesota compete for professional-services teams and tech-adjacent work that might otherwise migrate to lower-cost states or overseas — but economists argue that long-term retention will depend on whether firms feel Minnesota can meet their talent needs.

Artificial intelligence and the future of work

Minnesota’s workforce programs are primarily designed to strengthen pipelines into middle-skill and high-demand occupations, but the state is also confronting quieter losses in its white-collar job base. Over the past several years, Minnesota has shed jobs in finance, information and professional and business services, even as the national economy added positions in those sectors.

Economists warn that these roles historically acted as “mobility escalators” for mid-career workers — jobs that paid well, offered benefits and enabled moves into higher-wage positions.

“These are the sectors that power long-term income growth,” Macalester College economist Joe Anderson said. “When they contract, mobility contracts with them.”

It’s difficult to quantify how many of these jobs are being lost for reasons related to artificial intelligence. 

“We can’t tie layoffs or job changes directly to AI because that isn’t currently required on layoff notices or in UI (Unemployment Insurance) claims,” said Angelina Nguyen, director of research for DEED’s Labor Market Information Office. However, she noted, news reports and job descriptions listing AI skill requirements suggest some job loss may be happening, but they expect automation to transform roles before eliminating them.

Across sectors, firms are consolidating roles in HR, accounting, administrative support, legal services and marketing, replacing or restructuring teams previously considered stable, economists say. Anderson described it bluntly: Companies that once needed full departments now ask “whether it’s cheaper to do the same work with a subscription to a large language model than to pay someone’s salary.”

Policy experts suggest Minnesota could counter these trends through tax incentives for firms retaining professional-services teams in-state; grants for companies building AI-complementary roles rather than AI-substituting ones; and targeted support for tech or data startups willing to headquarter locally. Whether the state chooses those levers — or accepts that part of its white-collar base will continue migrating — could shape Minnesota’s economic landscape for the next decade.

A long-term problem with no quick fixes

As Minnesota weighs how to respond to AI’s disruption, economists warn that the technology is arriving at a moment when the state can least afford more divergence. The choices made now — in training systems, industry incentives, housing access and job-quality policy — won’t just cushion the shocks of automation. They will shape whether the two arms of the state’s economy pull further apart or finally begin to bend back toward each other.

For all the complexity of Minnesota’s economy — the contradictory data, the uneven job market, the rising pressure on households without assets — the throughline is mobility. The state’s long-term competitiveness depends on whether Minnesotans can move up, move across and move forward. And that, economists say, requires rebuilding the rungs of the ladder: places to live, jobs that lead somewhere, skills that match demand and institutions capable of adapting to the next wave of technological change.

Minnesota already invests in middle-skill pipelines, easing degree requirements for state jobs, expanding childcare capacity and nudging employers toward on-the-job training models that historically helped workers climb rather than slip. Housing policy — the biggest lever of all — remains politically fraught but economically unavoidable. And the workforce system is slowly orienting itself toward the kinds of jobs that will exist a decade from now, not the ones fading today.

But the gap between Minnesota’s two economies was years in the making, and closing it will take more than any one program, agency or budget cycle, economists note. And it will require a clear sense of what kind of economy the state wants to build, and who it must not leave behind to get there.

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