Finding Good Workers

Attend almost any gathering of business people and the topic is sure to come up – finding good workers. After more than a decade of economic growth that has featured strong hiring and steadily falling unemployment rates, labor markets across the country and certainly across Montana are tight. For some the supply of suitable workers for their openings has shrunk to the point where they are questioning how they can continue to fill orders, let alone capitalize on new opportunities.

The data agree with this assessment – at least to a point. The Montana unemployment rate has been below 4 percent for more than two years, with jobless rates for fast growing places like Gallatin County down to an incredible 1.9 percent. At the height of the recession there were more than seven unemployed workers for every job opening in the Western region of the U.S. – now there are fewer than one.

But the story isn’t quite this simple. Conventional definitions of unemployment don’t count those not looking for work. When taking into account all working age adults, whether in the job market or not, more slack exists than official unemployment rates indicate. Some places in Montana and some subpopulations are faring better than others. Some types of jobs, most notably skilled
construction trades, face more acute shortages than others. And through it all we have a quiet revolution in how job candidates and companies find out about each other.


 

As economic problems go, you might say this is a good one to have – too many jobs, shall we say. But it is a problem nonetheless, and some solutions (e.g., offshoring, turning down business) are worse than others for the economy. Understanding how and why it has come about is critical to crafting strategies and solutions that grow the economic pie.

The Longer View of Tight Labor Markets
A growing economy soaks up unemployed workers – this has been a fundamental part of the economic cycle for as long as data have been recorded. Today’s tight labor markets certainly bear witness to that, but other forces are at work as well. The cycle of demographics is not well understood by many, but its impacts on the labor force are far reaching. Changes in migration of workers and families, both within and from outside the country, have given areas that attract those new residents a distinct advantage. And the preferences and desires of our newest generations – the millennials and the Gen Z’s that follow them – present daunting challenges and opportunities for Montana employers today and in the foreseeable future.

Figure 1. U.S. and Montana labor force participation rates, seasonally adjusted, 2007-19. Source: U.S. Bureau of Labor Statistics.
Figure 1. U.S. and Montana labor force participation rates, seasonally adjusted, 2007-19. Source: U.S. Bureau of Labor Statistics.

The most important event in our modern demographic history – the post-war baby boom – is starting to play out. The retirement of the boomers has played a large role in today’s markets, driving down growth in the U.S. working age population (ages 20-64) from over 1.5 percent to just over zero today. But this cycle is turning – the trend of decline in working age population growth will flip to growth in the early 2020s as boomer retirements ebb and Gen Z’s mature into the potential workforce.

Domestic and international migration is a wild card that will continue to shape these trends. International migration, particularly of Hispanics, has given a more youthful tinge to U.S. population in recent years. Gen Z makes up almost 20 percent of national population today, higher than any of the G10 countries in Europe and Asia. Montana communities have experienced both sides of these effects, with faster growing areas attracting younger migrants just as rural communities deal with their exits.

The preferences and desires of those aging into prominence in today’s labor markets promise to be of even greater importance for Montana employers in the coming years. Gen Z’s want to go to college, just like the millennials they followed. They say they want to work in technology and health care jobs – only 4 percent say they would consider a construction job. And their movement toward cities and large urban areas presents challenges to a state of smaller cities and plenty of open space.

Figure 2. Growth in working age population (20-64), U.S. and Montana. Sources: Census Bureau, Bureau of Business and Economic Research.
Figure 2. Growth in working age population (20-64), U.S. and Montana. Sources: Census Bureau, Bureau of Business and Economic Research.

How Markets and Companies Adjust
What academics and researchers say about the future is important, but companies need to survive and grow today. What are they doing and what can they do to address their own staffing problems?

Of course they can boost salaries. What would you expect an economist to say? Nationally, there is some evidence of this with faster growth in hourly wages. In Montana the evidence is less clear – wage growth is more erratic, but showing faster growth in the last year. Higher wages are not a zero-sum solution, as they can lead to higher participation rates in the population by making employment more attractive.

That solution is not available for many employers who lack the ability to pass on cost increases to their customers. There are a variety of other actions that might be considered:

  • Reorganizing roles in the workplace, redefining some jobs to fill the gaps created by unfilled vacancies;
  • Hiring less qualified workers, investing in training to bring them to the required level of skill, even at the risk of losing their investment when they take jobs elsewhere;
  • Pursuing automation as a way to reduce staffing requirements;
  • Outsourcing or offshoring tasks once performed in-house;
  • Broadening the search process to address different geographies, subpopulations and information platforms, especially those afforded by innovations in job search technology.

The information age has produced marked shifts in how job openings are filled. The demise of the newspaper classified ad is obvious from the stock prices of surviving print media companies. In its place is a world where data is cheap, but extracting information from the noise is not. It’s also a world where workers review you, and managing your company’s online reputation can boost or defeat your efforts.

The solution of turning down work that is offered, or even cutting back on current operations, is another kind of adjustment that is clearly on the menu of choices as well. And some Montana employers have doubtlessly gone down this path.

Another solution, if you can call it that, will inevitably occur in the next economic downturn when market power swings back to employers as disruptions and layoffs increase the number of job seekers.

Thinking Outside the Box
Is it time for fresh thinking on recruiting and retaining good workers? Nothing fuels innovation like scarcity. Some solutions to finding good workers for openings are hiding in plain sight, although making them work might be more than an individual company can take on. Perhaps policy could help.

Some of these ideas are different. Some might even be considered dead on arrival. Yet they address a real problem and could offer some relief. They include:

  • Tapping the teenage labor force. Teenager participation rates are down almost 20 percentage points from 2000, when more than half of those aged 16-19 worked.
  • Reconsidering drug testing. With recreational cannabis gaining public acceptance, is it time to revise our thinking on drug testing as an absolute requirement for employment?
  • Convicts and ex-convicts – with 4 percent of the world’s population, the U.S. has 22 percent of the world’s prisoners. Is this an opportunity?

Other ideas are perhaps less controversial, yet no easier to implement. The most straightforward is devising better tools and policies to accommodate fuller participation of young women in the workforce. While narrower than some other countries, in the U.S. women have participation rates that are 10 percentage points lower than men. And they work less hours. Child care is ferociously expensive when it is available, which in many places it is not.

It is also a time for employers of all kinds, but especially for those requiring skilled trades employees, to start reaching out to potential workers at a younger age. A recent survey reported that a large fraction of high school students would not consider a career in construction even for a six-figure salary. That’s a daunting challenge that should spur employers to action to dispel perceptions that may pose a dire threat to their pipeline of new workers.

And then there are older workers. They are already more numerous in the workplace, with a quarter of the workforce aged 55 and older in 2024, compared to just 12 percent in 1994. Abolishing mandatory retirement ages and pushing up the Social Security and Medicare ages would strengthen the incentive to work, certainly. But only if employers want them – and there is evidence that older worker’s higher costs and relatively lower motivation to learn new things makes them less attractive. Addressing these challenges wouldn’t be easy, but there are clearly rewards to doing so.

What’s Best for Montana?
As a sparsely populated state that straddles the Mountain West and the Great Plains, Montana has some advantages and also some special challenges in addressing its own workforce challenges. Migration trends favor us, especially in the western portion of the state. But we are also a less diverse, less urbanized state with limited resources to pursue expensive policy options, even if we could agree on what those might be. That puts the ball squarely in businesses’ court to grow through these workforce challenges – will we like the solution?