Keeping with the topics from recent weeks on the radio I thought I would write some more about annual pay. This time I took a look beyond the city of Grand Forks or the county to look at the state as a whole. We can delve back in to the county level again as needed but I was curious about how certain sectors would compare across states.
To sum up recent comments on the radio, from JT, me, or from callers, we hear often that pay is not competitive in Grand Forks, but we also hear that it is not a determining factor for employment in some sectors. I have my suspicions that these are largely lower skill sectors, employment skills are easily transferred to other firms and so everyone knows this will happen, or there are other issues I have not yet thought about.
With all that in mind I decided to look at annual pay comparisons between North Dakota, South Dakota, Minnesota, and the US as a whole. The three states seem like obvious choices, and I can always add in a state like Wyoming if we think it important as a result of discussions. The annual pay numbers go back to 2001 and end in 2017 so they incorporate both an agricultural commodity boom and the oil boom for North Dakota. It also includes the US financial crisis of 2008-09. This time frame should, to some extent, stack the deck in North Dakota’s favor. My starting assumption would be that North Dakota would be lower than the national average in most categories but should become more competitive in some and should overall become more competitive due to the Bakken oil boom. I limit this analysis to the private sector but include firms of all sizes.
What I found really interesting about the overall private sector annual pay is that Minnesota so closely followed the national trend and was essentially at the national average. North Dakota and South Dakota started the time period with a similar trajectory, but at about $10,000 less in annual pay overall. As oil activity takes off in North Dakota, the series diverges from the South Dakota data ending just short of the national and Minnesota annual pay numbers but giving back a little.
Manufacturing is often mentioned as a priority for North Dakota and while that may be the case, if you had manufacturing skills and faced these pay paths, which state would you choose? You would choose Minnesota is my guess, especially if you were indifferent on most other criteria. North Dakota is compensating at a higher level than South Dakota. However, the series are diverging a bit and North Dakota annual pay was around $12,000 less than Minnesota and the national average.
Financial activities is one I really looked forward to creating. By 2017 the gap in annual average pay is more than $20,000 between Noth Dakota and Minnesota, and Minnesota is again right around the national average.
This chart gives me faith that economic fundamentals still matter in North Dakota. There was an incredible surge in demand for construction workers in North Dakota during the oil boom, specifically for oil related jobs, but then it expanded out into other regions outside the oil patch. You might actually say a shortage existed at times. After 2010 these factors increased the annual average pay above the national average in construction employment and while the pay actually declined a little and is currently below the Minnesota level, the North Dakota level is still above the U.S. average.
Some broad takeaways for me are that the specific sector does matter. Take the construction industry for example. This is a sector with a known exogenous event driving matters and the compensation increases as employment demand grows rapidly. Contrast that with manufacturing which is often listed as a priority sector for state growth and development. If compensation levels are that low by comparison while you might be able to attract employers you likely will not attract, nor retain, workers, especially those with or developing skills. Once trained the worker would likely relocate to higher compensation regions. The same type of issue exists for financial activities.
I often hear people talk about the attractiveness of North Dakota as if being a nice place to live compensates for lower wages. It can, to a point. Is it worth $20,000 a year? To some it will be, but not to all. This ties into another issue mentioned often in North Dakota: keeping younger people in the state. Family connections and quality of life matter and may matter more to young people raised in North Dakota, but again the relevant question is: how much is that worth? For some it is priceless, for some it is worth $10,000. For some the weather patterns in North Dakota would require paying more to encourage people to live there, and that would be variable too. The individual compensating differentials matter here and obviously make policy formulation difficult but the point still stands: if you want to keep or attract workers, for some sectors it has to start with pay.