A national study finds that Minnesota is one of the worst states for racial disparities in economic security and opportunities to build wealth, despite our overall high economic performance.
Prosperity Now’s 2020 Scorecard measures family financial security across a range of indicators. While Minnesota ranks first in the scorecard’s overall prosperity ranking, the scorecard considers how racial inequities make Minnesota a less economically vibrant state than it could be, and how Minnesota falls short of being a state where all can truly thrive.
Prosperity Now finds Minnesota is among the 10 worst states in the country for racial disparities spanning five key issue areas: financial assets and income; businesses and jobs; homeownership and housing; health care; and education.
These metrics are especially important to pay attention to during our current economic and public health crisis, in which already unequal structures in our economy are being compounded by COVID-19’s disproportionately negative impact on people of color. Now, more than ever, understanding where we fall short should inform our state’s response to the virus and guide its work to ensure an equitable recovery.
Significant racial disparities in wealth and income
The impact of years of historical policies, like redlining, that prevented wealth formation in communities of color are laid plain in wealth disparities among racial groups in Minnesota. Measures of household wealth provide a good snapshot of this unequal opportunity, because wealth forms when families can save and invest for the near and long term. Data from 2016 show Minnesota ranking well overall, with a median household net worth of $185,000. Yet, median net worth for white households is much higher at $201,600. Although whites are the only racial group for which wealth data is available in Minnesota, this means families of color possess lower median household wealth.
Home equity makes up most of the net worth for the majority of U.S. households. Minnesota’s stark racial disparities in homeownership - white households own their homes at three times the rate of Black households – are clearly one reason why white household net worth is so much higher than the state median. This disparity is rooted in a legacy of exclusionary housing policies that have barred communities of color from accumulating wealth through home equity.
Households of color feel short-term economic shocks more significantly
Minnesotans of color are disproportionately harmed by lost incomes from losing jobs. Minnesota’s liquid asset poverty rate – which measures whether households have enough savings to cover necessities for at least three months – is nearly 21 percent as of 2016. While Minnesota overall scores the best of any state on this measure, this measure varies widely by race. About 17 percent of white households lack enough savings to weather job loss, but about half of households of color overall and almost three-quarters of Black households lack this resource. Lower incomes among people of color make them significantly less likely to build the savings needed to weather economic shocks like job losses or emergency health care expenses.
Minnesota’s income poverty rate, the percent of households below the federal poverty threshold (i.e., a family of four earning less than $26,200 in 2020), is another area with worryingly large racial disparities. While the income poverty rate in 2018 was 7.8 percent for white Minnesotans, people of color experienced a much higher rate of 21 percent. Furthermore, African-American and Indigenous households experienced the highest poverty rates of 28 percent and 29 percent respectively.
Building on state strengths for inclusive prosperity
While multiple barriers continue to deny our neighbors of color opportunities to thrive, Minnesota has made some important progress towards building an inclusive state economy. Minnesota has adopted half of the 29 policies Prosperity Now identifies as contributing to greater inclusive economic prosperity. A minimum wage indexed for inflation, a well-designed and targeted renters’ property tax refund, Medicaid expansion, a refundable state Earned Income Tax Credit, and a progressive income tax structure all make Minnesota’s income and wealth distribution more equitable.
However, there’s more Minnesota can do to work toward a more inclusive economy by:
- eliminating asset limit tests for the Minnesota Family Investment Program so that families can receive critical supports they need in tough times;
- establishing paid sick leave statewide, so that workers don’t lose wages or their jobs if they take time off to recover from an illness or take their child to the doctor;
- ensuring tax benefits for homeownership are available to all homeowners regardless of their immigration status; and
- expanding homeownership opportunities among those who have been historically left out.