More on North Dakota Wages—Standardized Comparisons

In a recent post I discussed the level of annual salary in several categories for North Dakota and some of the implications. I also discussed the rank for the overall average salary. As many of my students would likely think, there is a need to make a correction to those numbers. There are two things that can vary for those annual salary numbers, the distribution of the workforce and the compensation by occupational category.

Occupation Shares

From 2014 to 2016 Office and Administrative Support Occupations was the largest occupation sector in North Dakota at more than 14 percent of employment in each year. The smallest category? Farming, Fishing, and Forestry Occupations at between .35 percent and .37 percent in those same years.

There are two sectors most often associated with the oil boom: Construction and Extraction Occupations and Transportation and Moving Occupations. It is somewhat indicative of the fortunes for the state economy (and say, tax revenues) that in 2014 the two sectors combined for 20.778 percent of employment, only slightly less in 2015 at 20.694 percent, and in 2016 the total represented only 17.686 percent of employment. The reduction in the share for Construction and Extraction Occupations was almost 20%. While not a tectonic shift in labor markets it is enough to suggest there were changes in local labor markets in western North Dakota, but it may be a more nuanced situation than some stories would have you believe.

Standardizing North Dakota

I allowed the compensation by category and state to vary while I controlled for the different distribution of workers across the occupational categories. I used the US employment distribution as the standard instead of any particular state. It was interesting to see that North Dakota’s rank in each year improved, and it improved in each of the three years. It was not a major improvement as you might expect. North Dakota was in the middle of the pack and unless there were major quirks about the data it is unlikely to vault out of the middle of the pack. The state definitely placed in the upper half of the distribution, though well behind a state like Minnesota and well ahead of South Dakota, whether we are using standardized or unstandardized data.


What was the point of this? It is good to know that the distribution of employment is not necessarily skewing the compensation information for the state, for better or worse. As I said in the past, there is no one formula for growth and economic development. Policy needs to simultaneously recognize the limitations placed on a state through resource availability, while at the same time seeking to address potential shortfalls in resources that can prove detrimental in the long run.

As I add more data the story may change a bit, but the data from the last three years do not suggest wage increases adequate to alleviate the labor-constrained nature of the North Dakota economy. As the previously referenced post pointed out, some sectors grew better than others, or were at least positioned more competitively than others, from the perspective of compensation. However, when a state brags about an unemployment rate that is actually so low it likely discourages business from considering relocating to your area, as well as having more job openings than unemployed people, you would expect larger compensation changes to hopefully alleviate the labor shortage than we saw in North Dakota.

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