As I consider the current state of the North Dakota economy as well as the economic outlook, I continue to think about labor market issues. Last week on the radio the discussion of wages resonated with the audience, and is obviously a key factor in relieving labor constraints. Realistically, internal demographic issues (low birth rates, outmigration, etc.) and environmental issues (North Dakota winters tend to be cold) could be resolved by appropriate levels for wages. The precise amount of compensating differential is not my target right now, I am just recognizing that such a circumstance could exist.

In an attempt to shed further light on this issue I looked at Occupational Employment Statistics from the Bureau of Labor Statistics. These are big data files so I only have the three most recent set up right now, but I will continue to add more in the coming weeks. For geographic areas I used all 50 states, Washington DC, Guam, Puerto Rico, and the Virgin Islands. I limited this to the twenty-two major categories listed. There are more refined levels of detail for the employment categories but those will need to wait for later. Also, it is likely better to state at a larger level and then move to more granular data. The major categories have labels such as Management Occupations, Sales and Related Occupations, Construction and Extraction Occupations, and so on. I also looked at the level of employment across these sectors to calculate a weighted average wage/salary figure. For this discussion I looked at the annual mean salary.

Overall Annual Salary Rank

In a prior post I discussed the recent changes in wage growth for North Dakota and the U.S. as well as some implications for attracting and retaining labor. I did not discuss the salary level and its comparison to other states though. With an annual mean salary between $44,000 and $48,000 from 2014 to 2016, North Dakota was firmly in the middle of the pack. The ranks for salaries by year were 26,24, and 23. North Dakota’s salary rank actually improved in the face of the oil bust and the painful readjustment experienced by the state. The May 2017 data will be very important to examine to see further effects.

Category Annual Salary Ranks

Where North Dakota falls in the ranks for sectors is another important factor to consider. Compensation reflects both the present day, but it can be an important indicator of future growth. If you are not compensating in sectors likely to provide growth, you are less likely to attract employees and growth may suffer as a result. Over these three years North Dakota remained the 12th highest pay in the Construction and Extraction Occupations category, remaining behind states perceived as high cost, such as Hawaii, New York, and Massachusetts. Transportation and Material Moving Occupations ranked third, second, and third, over the three years, confirming much of the compensation stories coming out of the Bakken during the oil boom. However, it appears the compensation in this sector continued, at least into 2016, as the oil economy suffered its downturn.

The low ranking occupation categories in North Dakota are of note as well given, as I mentioned above, the potential for it to create an upward climb for economic growth and development policy. Let’s start with Business and Financial Operations Occupations . In 2014 the North Dakota average annual salary for this category ranked 50. In 2015 it improved to 49, while in 2016 it was ranked 45. Another category worth mentioning is Computer and Mathematical Occupations. For 2014 North Dakota ranked 48, while in 2015 it ranked 47. By 2016 the state mean salary for this category put it at 46th.

Summary

Growth across states is not uniform, nor should it be. There are differing factor endowments, policy regimes, and bits of luck that all come into play when discussing growth. However, the compensation rankings do indicate, at some level, the prioritization of the market. Higher pay categories were, at some level, more important positions that needed to be filled and wages responded.

As in all circumstances of finite resources this created a trade-off, which in this case was less competitive salaries in other areas. Make no mistake, this could be optimal: the time was right given oil prices and there was an intense need for workers in that sector. That was clearly a grow now sector and situation. It will be important to see if further data confirms this story.

The other possibility is this simply was a case of putting all your eggs in one basket. That is a bit more difficult to discuss based on this data alone. We would prefer data about the expected returns to these sectors, but this is more difficult to develop. It is also the case again that resource endowments and policy regimes might make such a strategy the optimal one.

For now it seems clear that North Dakota compensation ranks by category match higher growth areas in the economy over the 2014 to 2016 period. The data also seem to confirm the story that wages in other sectors were not as responsive and may have contributed to ongoing difficulties attracting and retaining workers in those areas.

This work by David is licensed under a Creative Commons Attribution-NonCommercial 4.0 International