Considering ND Labor Markets (A Prelude to Policy Wonks)

So I brought up a need to rethink labor markets in North Dakota last week (see post). I am not one to make recommendations and leave the work to others, so I gave this some thought in the last week. There is much data and plenty of anecdotal information available. Rather than jump into new analysis there is a need to step back and think about this from a broader perspective. I posted many times in the past about wages within the state (for example here) and labor force and unemployment (for example here and here). There is a persistence in the data suggesting a need to take the step back and think about this.

Much of this started as a result of a comment made on the post by Michael Loebach. It was a very insightful comment about some similarities between North Dakota and Iowa and it started me thinking about how to approach the entire situation. Let’s start from the assumption that everything is correct. All the data are accurate and the perceptions of people, workers, employers, are all correct. What does that get us? We start then by looking for potential inconsistencies.

The data suggest different stories playing out in different parts of the state. The West with the oil patch voraciously consumed labor resources around 2010, and while it needs labor now, it is more measured and planned than what we saw with Bakken 1.0. Fargo and Bismarck are also seeing wages growing, and while they are growing in Grand Forks, there is a slower growth and the potential of a widening wage/salary gap between Grand Forks and other regions in the state. So the data suggest gains in the state, but they are uneven and geographically distinct at the substate level.

Let us consider the Grand Forks region and the anecdotal evidence we hear from this area. The general complaint is an inability to attract and retain workers, but that is only a recent complaint (as in the last few years). This complaint is across all skill levels and all industries. It is natural to expect there would be some increase in wages as a response to the need and the relative position shown in the data. There is a different issue to bring into play here.

One of the frequent complaints is that increasing wages will require increases in goods prices. This is really a profit argument: input costs rising require output price increases to maintain profits. When you listen you hear this from a variety of industries as well, from low-skilled to high-skilled and all over in between.

So do all these fit a consistent narrative? That is, are there inconsistencies with these different pieces of information.

Lower wages would certainly be consistent with a difficulty bringing in and retaining labor, though it seems to be an issue that should be older than what we heard locally. What about the need to raise prices in order to pay higher wages? This is more difficult to answer as firm idiosyncrasies will impact profitability in distinct ways. Let’s go back to the assumption that everyone is telling the truth. What else can we consider that would make this work. If we go to Michael Loebach’s comment he offers up a variable we could consider: migration. Now North Dakota may not be suffering conventional migration issues. There is substate migration from just about everywhere into the oil fields and to the Fargo area and Bismarck. The pull into these areas is great, and the higher wages would seem to be a pretty good rationale for such a move.

What about the prices of goods? If we assume people are being accurate then it would seem that production processes need to be revisited to see if there are efficiencies that would allow higher wages and maintain profit levels. This is not something that could apply to all businesses but it is something that matters and will impact the reputation of an entire local economy. If the population or target market is not large enough to generate adequate demand there could be a low price equilibrium and a lack of scale economies that keep prices higher.

There is surely out migration of trained young talent at the state level too, but I think this has been a consistent issue for many years, if not decades. While it reversed thanks to oil, that does not necessarily keep college graduates in the state.

There are other factors in the demographic realm we could consider but I think this is enough of a big picture look to get some feedback from the listeners to the radio show and hear what they say.

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