Minnesota Surpasses Wisconsin in New Business Filings
Minnesota and Wisconsin are frequently held up for comparison,* given similarities between the two states in terms of geography, climate, economy, and population size and ethnicity. As noted in a recent Minnesota 2020 article, Minnesota has been getting the better of these comparisons in recent years, with superior job, income, and GDP growth relative to our neighbors to the east. Now, thanks to information from the Minnesota Office of the Secretary of State (OSS) and the Wisconsin Department of Financial Institutions (WDFI), it is possible to compare these two states on one more metric: the number of new business filings.
New business filings are a measure of entrepreneurs’ willingness to take a risk on new ventures and are indirectly an indicator of a state’s ability to foster opportunities for economic growth. By themselves, new filings are only a partial measure of the quality of a state’s business climate, but in concert with other measures can help provide a more complete picture of economic and business conditions within a state.
According to information from the OSS, there were over 58,000 new business filings in Minnesota in 2013. However, this total includes trademark, assumed name, and reservation of name filings—information not reported by the WDFI. For purposes of this analysis, these three categories will be excluded from the Minnesota filings in order to provide an apples-to-apples comparison between the two states.
Excluding these three categories, Minnesota had 41,694 new business filings in 2013, while Wisconsin had 37,145. This would be the third consecutive year in which Minnesota surpassed Wisconsin in new filings. The following chart shows the cumulative monthly growth in new business filings in both states since January 1, 2011.
Minnesota only slightly outpaced Wisconsin in new business filings in 2011; in fact, in three of twelve months of 2011, Wisconsin exceeded Minnesota in new business filings. However, beginning in early 2012 the gap between Minnesota and Wisconsin began to widen. Only once in the last 24 months (January 2012 to December 2013) did Wisconsin filings outnumber Minnesota; over this two year period, Minnesota averaged approximately 500 (16 percent) more new business filings per month than Wisconsin.
The contrast between the two states is even more striking when we examine the number of new business filings per million population. In each of the last three years, Minnesota averaged 7,553 new filings per million population, 22 percent more than Wisconsin, which averaged just 6,190.
Minnesota’s domination of Wisconsin in terms of new business filings is not restricted to just a few categories of businesses, but extends across all major categories of business structures. In both states, approximately 98 percent of all new filings fell into one of five categories: domestic business corporations, domestic limited liability companies, domestic non-profit corporations, foreign (out-of-state) business corporations, and foreign limited liability companies. In each of these five categories, the number of new filings in Minnesota exceeded the number in Wisconsin over the course of the last five years—both in absolute numbers and on a per capita basis.
Conservatives may argue that Minnesota’s higher rate of new business filings relative to Wisconsin is the result of the austere budget that anti-tax legislators in Minnesota pushed through over the objections of Governor Dayton after the 2011 state government shutdown. However, upon close scrutiny, the logic of this argument falls flat. If prosperity in general and new business filings in particular are a function of conservative state budgeting, Wisconsin’s performance should be surpassing Minnesota’s, since the budget passed in Wisconsin in 2011 under Governor Scott Walker and a conservative dominated Senate and Assembly was more austere than anything seen Minnesota.
The more rapid expansion in new business filings in Minnesota relative to Wisconsin—in concert with Minnesota’s superior rate of growth in jobs, personal income, median household income, and GDP and consistently lower rate of unemployment—provides ample evidence that Minnesota is currently outperforming Wisconsin in nearly every category that matters. This reality is a conundrum for conservatives in both states, who posited that Wisconsin’s more austere budget practices and anti-union policies would produce a prosperous state. Perhaps it’s time to reconsider—if not abandon—this agenda.
*The relative merits of the respective fiscal courses pursued by state policymakers in Minnesota and Wisconsin was the focus of a forum sponsored by the Humphrey School of Public Affairs last fall that featured the Wisconsin and Minnesota revenue commissioners. Minnesota 2020’s take on this event was summarized in an October 9 Hindsight post.