Labor shortage strains Ninth District employers, and it might get tougher

While the labor shortage in the Federal Reserve’s Ninth District has eased considerably since the depths of the COVID-19 pandemic, it remains challenging for many employers.

And there are concerns that it may become more challenging again soon.

That’s according to multiple panelists at the Minneapolis Fed’s eighth annual Regional Economic Conditions Conference (RECC) held in mid-January.

Jay Debertin, president and CEO of CHS, the Twin Cities-based farmer-owned cooperative, said one group of employers who could be affected are dairies. These are labor-intensive, around-the-clock operations that rely greatly on immigrant workers.

Finding workers now is difficult but dairy farmers have found ways to make it work, said Debertin, keynote speaker at the RECC. Those farmers are now watching closely for changes to immigration policy, he said. “The question is, Where do we find ourselves in six months or in a year?”

A tighter labor market for dairies could lead to higher milk prices for consumers and lower profits, resulting in industry consolidation.

The conference was attended by more than 500.

A tighter labor market than pre-pandemic

Across the Federal Reserve’s Ninth District, most states continue to report more job openings than job seekers, according to the latest data from the Bureau of Labor Statistics. The ratio of job seekers to job openings shows a labor market that’s not as tight as during the pandemic. But, for most district states, the market is still tighter than pre-pandemic times (Figure 1).

With 0.6 job seekers for every job opening as of November 2024, Minnesota is among those states.

“We’re still in a tight, tight labor market and I would expect that to be the case for the next 10, 15 years until the next generation is fully in the labor force,” said Angelina Nguyễn, research director at the Minnesota Department of Employment and Economic Development.

Part of the reason is more baby boomers are retiring. But new generations entering the labor force aren’t as numerous. This trend is likely stronger in many parts of the Ninth District because the population is older than average.

Three-quarters of Wisconsin’s Ninth District counties reported shrinking working-age populations between 2010 and 2023, according to Matthew Kures, community economic development specialist at the University of Wisconsin–Madison. The median ages in most of those counties were greater than the state median of 40.6. The national median is 39.1. Kures expects the labor supply to tighten further between 2020 and 2040. The only Ninth District county in the state that’s projected to have a growing working-age population is Eau Claire, he said.

But most Ninth District states are able to tap into another labor pool.

“What by far and away has helped us address the tight labor markets over the last year has been our rapid in-migration,” said Montana State Economist Amy Watson. Over the past four years, the state’s population has increased 5 percent. New residents tend to be younger and more likely to participate in the labor force.

New residents from other states are typically the largest group of in-migrants. The number of new residents from abroad is also significant in some states, especially as the domestic in-migration of the pandemic era tapers off.

For North Dakota, “domestic migration at a net level isn’t a driver like it was earlier,” said David Flynn, an economist at the University of North Dakota. “However, international migration has been fairly strong. The net international migration has been a strong force for North Dakota, obviously filling some of those labor gaps.”

According to the Census Bureau, fewer U.S. residents moved into North Dakota between 2020 and 2024 than moved out. But this loss was more than made up for by the influx of new residents from abroad.

International migration outpaced domestic migration in Minnesota, Wisconsin, and Michigan (Figure 2).

Like Debertin, Flynn warned that if immigration were to decrease, labor shortages could worsen.

Solving the labor problem

In-migration isn’t a cure-all for a tight labor market.

“The number of people coming into Minnesota in normal times is in the tens of thousands, whereas the job vacancies that we’re seeing now is in the hundreds of thousands,” Nguyễn said. “We would need way more numbers of people coming into the state to fill the job vacancies that we have.”

To meet labor needs, employers are using a variety of tactics.

“We saw wages jump in the years immediately after the pandemic because of all the job hopping that people were doing. And we are actually still seeing consistent wage growth. It hasn’t slowed down,” Nguyễn said. In fact, it’s become more common for employers to include potential salaries in job postings, she said.

Employers are also continuing to offer flexible schedules, even in sectors such as manufacturing, where work is performed in groups, not independently. That could mean being “more accommodating in terms of hours worked, different shifts, maybe working four days a week instead of a full five-day work schedule,” Kures said.

Employers are also making investments to reduce the need for labor.

Amy Berglund is director of business initiatives at InvestUP in Michigan’s Upper Peninsula. She said manufacturers in her region are addressing labor shortages with automation. “They’re really investing a lot in ramping up on equipment.”

Such investments can be expensive, though. Economic development agencies like Berglund’s are trying to grow the workforce by simply introducing high school and college students to local employers before they graduate and potentially leave the region. That way, “the talent that wants to stay post-graduation know who to talk to and where to go to make that happen.”

Of note

The conversations at the RECC were wide-ranging, crossing state lines, business sectors, economics, and politics. Here are some highlights:

Agriculture in a down cycle: In the third quarter of 2024, South Dakota’s gross domestic product shrank by 1 percent year over year. Blame it on the struggling ag sector, said Joseph Santos, director of the Ness School of Management and Economics at South Dakota State University. It was the only major sector in the state that shrank, he said. Debertin said crop producers are struggling the most now compared to ranchers, who are doing better than they have in recent years. But, he said, ups and downs are normal. “That’s the nature of agriculture and that’s the nature of the businesses that we are in.”

The outlook for oil: Many in North Dakota believe the Trump Administration’s energy policies will supercharge the oil and gas sector, according to Flynn. But if that happens it won’t happen right away, he said. First, fracking, the method used to extract oil from the state’s Bakken Formation, requires a lot of investment over a long time. Second, oil prices are already high and would need to be higher for many months before significant new investment is justified.

The year ahead: Ninth District business owners and managers are bullish about their own prospects in 2025 but not so much about the national economy, according to Joe Mahon, regional outreach director at the Minneapolis Fed. In a recent monthly Minneapolis Fed Business Pulse Survey, about 60 percent of respondents said they were optimistic about their business. Respondents’ optimism decreased further and further when asked about the economy in their community, their state, and the nation. Only 40 percent were optimistic about the national economy.

Panelists were optimistic about the outlook for their state’s economy. Santos said South Dakota’s large financial sector is likely to benefit from the new administration’s more “de-regulatory mindset.” Ag should benefit also as inflation eases, limiting the cost increases for ag inputs, such as fertilizer. In North Dakota, the lower inflation could stimulate demand for energy, boosting the oil and gas sector, which has become a bigger part of the state’s economy, Flynn said. In Montana, Watson is projecting growth as well. The big unknown is whether in-migration so critical to the state’s labor supply will remain at the present level or decline.