It was a busy week with a visit by the Minneapolis Federal Reserve President, Neel Kashkari. I will post about that later probably. With the other economic news coming out about the shelving of another vote on healthcare overhaul and the release of a tax plan, wages and income seem to be as relevant now as they were in the last few weeks.

What should we expect to see from income and wages? If the anecdotal evidence we hear about the inability to attract and retain workers is true, you should expect wages and income to rise. The wage increasing should allow you to keep existing employees and maybe attract some new ones to your firm. Is this always the case? No.

There are always imperfections in these situations. Anyone telling you this works always is either a novice, never sets foot in the real world, or has a vested interest in you believing this will occur. It always depends on a variety of other factors, many of which employers in North Dakota, or anywhere for that matter, do not control in the least. Employees and potential employees have preferences about the weather, the average age and other demographics of the community, and yes, pay. A business really only possesses strong control over one of those.

President Kashkari is pretty spot on when he suggests that if you are complaining about a labor shortage and you are not talking about raising wages, you are just whining. This is why I say we are labor constrained. A shortage is a disequilibrium situation while labor constrained implies more that some other factor keeps labor at levels less than desired. So if we truly had a labor shortage what would happen: wages would rise or we should see more automation. Businesses either pay employees more, or they adjust their business model away from a labor dependence to capital equipment.

So what do we see in the recent data? Here is a look at the overall average annual pay:

I usually caution about using averages because they can mask important variation at smaller levels. I hear about wage increases to address these labor issues in places like Grand Forks and Fargo, and yes, the annual pay is going up as the graph shows. Is it going up enough though? I included Williams county for the oil boom, but also because they had a labor need and look what they did with compensation. It boomed along with the oil economy, and obviously fell with it as well. However, that is raising wages to attract workers. The rest of these counties see compensation increase, but nothing close to Williams. Is it any wonder workers left those other counties for opportunities out west.

Yes there are cost of living issues that may influence decisions. However, you show me a large group of 20 year olds preoccupied with the cost of living in relation to their pay check and then we will talk. I will not hold my breath on this one in anticipation.

The same holds true in a few specific sectors as well.

Service activities pay exhibits much the same pattern as we see in the overall compensation. Williams county shows how you deal with intense labor needs. Raise the compensation high to get the workers in there.

Financial activities has a little more variation to it, though the pattern remains largely the same. In fact, Grand Forks is more competitive in this one. It likely did not escape notice that it was a distant fourth for most of the time in the other two graphs. In financial activities it is competitive with Bismarck and Fargo for much of this time, though not with Williams.

I am not suggesting that the other three counties should be that competitive with Williams really. As the epicenter of the oil boom it had advantages and the ability to significantly increase compensation to attract the workers needed. With inflation so low I am fairly confident there are real increases in compensation in Burleigh, Cass, and Grand Forks counties too, but nothing like what you see in Williams. So the question I assume JT will ask is: what should business do?

Adapt or die. The signals are pretty clear from my perspective. Compensation is higher in other places and this is an in-state comparison so I do not think you can rely on non-price factors to allow for a big wedge in compensation. You need to find a way to offer competitive compensation to keep workers or you need to find a way to run your business with fewer workers. This may not be feasible for all businesses. It will certainly depend on the business owners desired returns on their investment, and not all businesses can automate, at least not easily.

So the question becomes this: if we really face a labor shortage here, will business do something about it? Or just keep whining? Is it a real problem? Or is it just the cost of doing business in North Dakota?