St. Louis County cities suffering from high poverty

From World War II to 1980, the American economy worked incredibly well for most of us. Possibly for the first time in world history, rich and poor shared proportionally in the unprecedented prosperity of the era. Wages rose. Household incomes rose even faster as women joined the workforce. Poverty declined in response to better pay and social programs. The wealthy were by definition better off, but they saw income increases proportionally similar to the rest of us.

Since 2000, our economy has not served most of us well. Since 1980, wages have stagnated or declined for all but the highest paid. Since 2000, poverty rates have risen and the incomes of those in the middle have declined. The Great Recession in 2008 caused dramatic reductions in income and increases in poverty. We have been recovering for almost six years. Yet, U.S. poverty rates have continued to rise and the median household income has not recovered. Those at the top, notably those in the top 1%, have seen their share of all income rise from 10% in 1980 to over 20% now. Since the end of the recession, this 1% has received about 90% of the fruits of the recovery.

In 2011, I, with two others, looked at how Minnesota was doing relative to other states. Minnesota has and continues to do well relative to the U.S., even if we have lost some ground. Minnesotans in the middle have done better (median household income) than the rest of the U.S. since 1992. Poverty is and has been lower here: in 2014 the Minnesota poverty rate was 11.5% compared to 15.6% in the nation. Our overall income inequality is and has been lower than in most states.

Some reacted to that work by suggesting that Minnesota was doing well enough. No need to worry about poverty or the plight of working families! Yet we all know that outstate Minnesota is not the same as the Twin Cities suburbs. So I undertook another effort, looking at the state county by county.

The results were remarkable. In 2012, the median household income was $85,000 in suburban Scott County (the highest), almost 2.5 times that in Wadena County (at $36,000, the lowest). Both were lower (in 2012 dollars), than they had been in 1999. The Twin Cities suburbs are dramatically better off than the poorest parts of Minnesota, though middle income households across the state are poorer now than they were at the turn of the century.

Poverty, too has gotten worse since 2000, and the highest rates and largest increases have been reserved for Northern Minnesota. In 2012, the lowest poverty rate was in suburban Carver County at 5.2%. Mahnomen County had a poverty rate more than 5 times as high at 27.2%. A person is defined as living in poverty if their household income is below a threshold set by the Federal government. In 2015, that threshold for a family of four was $24,250.

The fruits of Minnesota’s relatively successful economy are concentrated in the Twin Cities suburban ring. Leave that ring in any direction (including into the cities) and the story changes dramatically, and not for the better. The worst direction to head is north.

The results for St. Louis County shocked me. I grew up in Duluth and Mt. Iron and had a cabin near Tower for many years. After living in the Twin Cities for nearly 40 years, I retired to Aitkin County. Aitkin County is perceived to be poor. It is. Yet I perceived St. Louis County to be prosperous relative to the rest of outstate Minnesota. Does not the mining industry (at least what was left of it) pay decent wages? Are not most construction workers unionized? Is not the workforce better educated than most? Is not Duluth a tourist mecca and regional medical center? I am wrong. St. Louis County suffers higher poverty and has only slightly higher incomes than Aitkin County. Household income has simply not kept pace with incomes in most of the state.

In 2012, median household income in St. Louis Co. was $46,200, about $30,000 (40%) below the Twin Cities suburban median. Of Minnesota’s 87 counties, 64 had higher median income than St. Louis County. It was not always so. In 1999, the county median was 10% higher (in 2012 dollars) than in 2012. Only 51 counties had higher median incomes. In 1995 (1969), only 33 (18) counties in Minnesota had higher incomes than St. Louis County.

The story on poverty is even more troubling. In 2012, the St. Louis County poverty rate was 16%, among the 10 highest in the state. By comparison, Minnesota and Aitkin County had poverty rates of 11.2% and 12.6%. By 2014 the St. Louis County poverty rate had risen to 17%, while Aitkin County’s rate had fallen to 11.9%. About 34,000 St. Louis County residents lived in poverty in 2014. That is 5,000 more than the combined population of Hibbing, Virginia, and Ely. These numbers do not reflect the effects of recent troubles in the mining industry.

My perceptions were correct in 1970. By 1995 the County was slipping but remained relatively well off. Today, my sense of St. Louis County as a relatively prosperous place is wrong. Dead wrong. But, I thought, maybe some parts remain prosperous. That would, of course, mean some areas are doing worse. To get a sense of this, I looked at median household income and poverty from 2009 to 2014 in four of the largest cities, Duluth, Ely, Hibbing, and Virginia, Hermantown (a Duluth suburb), and two other townships. The cities are doing worse than the county as a whole, while the chosen areas outside of the city are doing better.

The county household median income in 2014 was about $47,000. Duluth had a median income roughly 10% below that at $43,500. Ely’s median is about $37,500, about 20% below the county median. Hibbing’s median is similar to Ely’s at about $38,000, while Virginia’s median is lowest at 33,000. For comparison, the State median is over $60,000, and the poorest U.S. state, Mississippi, has a statewide median of about $39,500.

With the exception of Ely, poverty rates in the cities are higher than the county rate of 17%. These rates are startling: Duluth 23%, Hibbing 21%, and Virginia 26%. These are all 4-5 times the rate in TC suburban Carver County and similar to the 22% poverty rate in Mississippi. Ely’s rate is lower at 16%. Maybe more troubling is that poverty has risen steadily since 2009 in all three cities except Ely, where it has declined by 5% from 21%. Hibbing and Virginia both experienced increases in poverty rates of 8%, while Duluth’s increase was less than 3%.

If the cities are doing this badly, then some areas must be doing much better. My guess was that the Duluth suburbs and areas around popular lakes would have concentrations of higher income folks and few living in poverty. Hermantown, a suburb of Duluth, appears to be much like the Twin Cities suburbs. It has a median income just under $70,000, 60% higher than that of Duluth. The poverty rate in Hermantown is about 7.5%, roughly a third of Duluth’s. The direction was expected; the magnitude of the differences was not.

Greenwood Township is near Tower and is essentially surrounded by Lake Vermilion. Some popular lakes near Ely are in Morse Township. The median income and poverty rates are nearly identical in these townships. Median household income is about $53,000, about 40% higher than in Ely and 60% higher than in Virginia. Poverty rates are below 7.5%, a fraction of the rate in Virginia and less than half of Ely’s rate.

The people of Saint Louis County have always drawn their livelihood from natural resources. My thought is that the cities provide much of the labor for these industries. That is, many of the folks who live in Ely and Duluth provide the labor to serve those who come to enjoy the natural amenities. Workers in the mines and related businesses largely come from the Iron Range cities like Hibbing and Virginia. Nothing in this data indicates that the workers of St. Louis County are well served by these industries. That includes tourism, service to cabin owners and transplanted homeowners, mining, and timber extraction. Will the next development project, whether started or prevented, have a positive impact on the residents of the county?

This general story is not new or surprising. Times have been tough since the turn of the century almost everywhere. They have been tough, actually tougher, in Saint Louis County for much longer. I only hope this information (and more to come) can better inform the work of those concerned with improving the condition of the people of Saint Louis County.

Tom Legg is retired from the finance faculty at the University of Minnesota’s Carlson School of Management. He has returned in retirement to his roots in northern Minnesota. He has a B.S. from UMD and a Ph.D. in Applied Economics from the University of Minnesota.