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New economy value meal, please

The hype is all high-skills and high-pay, but the meat is maybe something less

July 1, 2002


Ron Wirtz Editor, fedgazette
New economy value meal, please

You'd like a "new economy" job, you say? Would you like fries with that?

Examples abound regarding the move to a higher-skills economy. The Internet and biotechnology, for example, have introduced droves of new high-paying jobs that did not exist just a short time ago.

But outside the new-economy hype, job growth remains strong in less-skilled, old-economy kinds of make-and-sell jobs, like manufacturing and retail. This two-headed demand for workers also plays out differently in today's—and tomorrow's—labor shortage. Shortages of educated, high-skilled workers in high-paying fields will grab more headlines and attention, but shortages in low- and semiskilled jobs will likely be more pervasive with local businesses.

Lots of jobs, but ...

In North Dakota, for example, the growth rate of new jobs is expected to be highest among those requiring an associate degree, spurred by very strong demand for computer support specialists, which are projected to more than double by 2008, adding more than 3,000 jobs to the state, according to a report by Job Service North Dakota.

But look at the data through another lens: Despite the fast rate of growth, all jobs requiring a two-year degree are expected to make up just 5 percent of all jobs in North Dakota in 2008. About 18 percent of occupations require at least a bachelor's degree and that "is not expected to change in the next ten years." Close to 60 percent of all new jobs created from 1998 to 2008 will require only moderate or short-term on-the-job training. The state expects to add more new jobs in amusement/recreation attendants (400) than jobs for accountants, chemists, computer programmers, lawyers, human resource managers, pharmacists and electrical, civil and mechanical engineers—combined.

Montana, South Dakota and the Upper Peninsula of Michigan are projecting a similar pattern of new jobs in the coming years—which often exhibits a fast rate of growth among new, high-skill occupations, but most of which start from a small base of jobs that will ultimately add a modest number to respective state economies.

Some high-skill, new-economy occupations, like systems analyst and computer engineer, are seeing significant increases in Minnesota and Wisconsin, both in terms of growth rate and total job growth. But according to job projections, no district state needs more than about one of three workers to have two- or four-year degrees to meet the current and short-term demands of employers. That's a growing percentage, but is still a solid minority of all employment.

Taking pulses

Notwithstanding rising unemployment rates in many regions in the last year, anecdotes abound regarding shortages of workers at all skill levels.

The north-central region of Montana can't find enough pharmacists, nurses, electricians, dentists and plumbers. By the same token, employers paying at or near minimum wage are constantly looking for employees, according to Craig Erickson, a planner for Bear Paw Development Corp. in Havre, Mont.

A survey of employers in northern Minnesota counties found that 54 percent of employers are struggling to attract entry-level employees, and 40 percent indicate problems attracting skilled employees. Employers in Lincoln County, in north-central Wisconsin, are having greater difficulty finding skilled workers, but recruiting has become more difficult for all skill levels in the past several years, according to studies done there in 1995 and 2000.

But some evidence suggests that the labor shortage is most severe for low- and semiskilled positions. Ron Kraft, head of Yankton (S.D.) Economic Development, said, "If I have a cross-section of a half-dozen employers, they'd tell me [they need] unskilled workers who have a work ethic. I know this was true before the recession."

That appears true for many regions in the district. For example, the shortage of skilled labor in west-central Minnesota grew by 125 percent from 1993 to 1999, according to a report by West Central Initiative (WCI), a nonprofit foundation in Fergus Falls that serves a six-county area.

But unfilled openings for unskilled workers in the region jumped from just five in 1993 to more than 500 in 1999—a 100-fold increase, on top of the fact that openings paying less than $6.50 were not counted. Openings for semiskilled workers saw the greatest increase in total openings—going from 132 in 1993 to more than 1,200 in 1999. One respondent said the company had an "infinite number" of semiskilled positions available. In 1993, combined vacancies for unskilled and semiskilled positions made up just 26 percent of all job vacancies in the region. By 1999, they made up 62 percent.

The same thing is occurring in La Crosse, Wis., where two-thirds of all job vacancies in that region required only a high school diploma or less, and paid an average of $9 an hour or less, according to an October 2001 survey by the Wisconsin Department of Workforce Development. Only about 8 percent of vacancies required a bachelor's or advanced degree.

A statewide job vacancy survey by the Minnesota Department of Economic Security (MDES) reported that vacancies in just three occupations—food prep, sales and office-administration support—made up about 38 percent of all vacancies in the fourth quarter of last year. About 80 percent of vacancies in these fields required no experience; 90 percent required nothing more than a high school diploma; median wages for food prep and sales were about $7 an hour.

Hopscotch on job ladders

As such, depending on the skill level of job openings, the labor shortage means different things for employers. Companies looking for high-skilled workers, particularly in high-demand areas like nursing, skilled trades or computers, might look long and hard and never get a bite because there is truly a shortage of workers with those specific skills.

Employers with openings for unskilled or semiskilled positions might also have to look far and wide for workers, but for different reasons. Many of these job openings are the result of high turnover rates. The MDES study found that 35 percent of all job vacancies in the fourth quarter of last year were "always open" and tend to be most common among low-paying jobs. For example, five occupations in Minnesota reported that at least 50 percent of their job openings were "always open," and average wages for all five were under $10 an hour.

For lower-skill jobs, the labor shortage is generally not a function of finding people with capable skills, even when unemployment rates are low. More often, labor shortages here are a function of the attractiveness of the job and employer. Numerous anecdotes demonstrate that, for the right price, a large and capable labor supply for lesser-skilled jobs can be found where there appears to be none.

And as labor availability studies throughout the district confirm, many current workers are willing and eager to change jobs when a better offer comes around. This is particularly true in lower-wage occupations, where even small, incremental improvements can entice workers to jump from employer to employer.

Many low-skill workers make about $6 an hour in Michigan's Upper Peninsula, and many with training or education "are working outside of their fields," according to Kathy Salow, regional analyst with the Michigan Department of Career Development, located in Marquette. "I think a lot of people are [looking to trade up], especially those people whose skills exceed the position they are in."

And it's happening across the district. Triennial studies by WCI in Minnesota found that the number of companies reporting labor shortages more than doubled from 20 percent in 1993 to 47 percent six years later, and the total number of openings grew more than fivefold. The report speculated that the "accelerating pace" of the labor shortage could be the result of a "positive feedback loop"—employees leave for more attractive openings, which force the affected employers to raise wages and benefits, which then triggers still more job-hopping.

For those employers not playing along, the consequences appear to be pretty clear: Keep looking. A survey in Barron County in northwest Wisconsin found that more than half of responding employers said they had difficulty retaining workers. Annual turnover averaged 17 percent among respondents, and the tight labor market was a likely culprit "as workers change jobs to obtain higher wages."

See also:
Labor Shortage, fedgazette, January 2005
Mr. Recession, meet Mr. Labor Shortage, fedgazette, May 2002

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.