Challenges for North Dakota, pt. 1

Many people ask me about the challenges for the North Dakota economy moving forward. This is much more difficult to do than it may seem; there are no easy answers here. There are many reasons for this. What seems to be an problem now may resolve itself of its own accord in the near future. It could also be the case new problems arise as a result of federal policy or technological innovations. As Yogi Berra said, “Predicting things is hard. Especially about the future.”

So where does this leave me? I am going to offer up a first suggestion, and it is one that seems to persist over time, and is one I hear about anecdotally and can see in the data. North Dakota seems to be labor constrained, and this seems to have been a problem in the past, and will likely continue into the future. This is not to say there is never adequate labor availability, but when there are events creating a sudden increase in labor demand there is inadequate slack in labor supply to take advantage of this.

I heard this from many businesses over the years but it is a bit harder to see in the data. Here is my first effort at making this clear.

The figure displays the monthly difference in the labor force (employed + unemployed looking for work) in North Dakota as a whole, and in the four core Bakken counties. Notice there are times when the monthly increase is greater than the increase for the state overall. There are also times when the decrease in the Bakken counties is greater (in absolute value) than for the state as a whole. If the change in the state labor force is less than the change in a subset of counties then the subset of counties must be pulling workers from other parts of the state.

The way this occurred on a month to month basis flies in the face of the notion that the labor market could reach equilibrium. Imagine a local labor market, Williston for example, experiencing repeated shocks as more and more businesses demand labor each month. There are pressures to meet this need and the result is higher wages in an attempt to sate the demand. As a result people in other parts of the state also look to relocate to the perceived better jobs. (This is just an aside but we can debate the point about higher paying jobs in the oil patch being better than elsewhere given the price increases that occurred there too.)

The volatility of the oil patch labor force is on display in the graph above as you look at the difference in monthly differences. This is just another way to look at the gap between the two series from the first graph.

I think North Dakota failed to grow at its optimum level during the oil boom due to inadequate labor resource availability. The state did not have adequate labor supply at the start of the boom, and could not attract enough throughout the boom. The result was internal labor reallocation across different counties in the state as labor sought its highest returns.

Obviously I am still working on the best way to convey this but I think labor supply represents an area of high concern for the state going forward.

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