Montana’s forest industry has seen a dramatic change in employment and wages since its peak in the late 1980s to the lows of today. Forest industry employment has dropped nearly 39 percent (4,600 jobs) and so have salaries and benefits paid to its remaining workers.
The debate surrounding this decline has centered on changing technology and an increase in productivity. For instance, we now have equipment that can chop down trees, remove the branches and load them on a truck all in one swift move, so we don’t need as many loggers in the woods to harvest the same amount of timber.
In January 2018, Mark Haggerty of Headwaters Economics testified before a joint subcommittee on Montana’s changing economy and tax structure. When asked to describe what’s changing, Haggerty noted that innovation in the wood products industry was to blame for declines in employment and income.
But the overwhelming conclusion from decades of data is that a diminishing timber harvest, or log supply, in the state is the leading cause. Simply put, we are not harvesting as much wood in Montana as we once did. In examining the data, the Forest Industry Research Program at the University of Montana found this to be the major reason for declining employment and labor income over the past 35 years.
Timber Harvest and Forest Industry Trends
Timber is harvested in Montana from both public and private lands, and the largest declines have been on U.S. Forest Service lands (Figure 1). In the 1990s, there was a 70 to 80 percent reduction in wood harvesting. Private harvests began to decline in the late 1990s as well, reaching a trough in 2009. Since then, timber harvests have stabilized at levels not seen since the 1940s. In all, the average Montana timber harvest since 2011 is one-third of what it was during the 1980s.
Because of this situation, Montana’s lumber production has seen the same overall trend, declining substantially since the late 1980s (Figure 2).
During the 1990s and early 2000s, the U.S. experienced a period of high lumber prices and record levels of new home construction and lumber consumption, but Montana’s lumber production continued to fall. Even at the peak of U.S. home building in 2005, with more than 2 million new home starts, Montana’s lumber production was only slightly above its 1982 recession low. And since the Great Recession, lumber production has remained relatively flat despite increasing lumber prices. Montana’s lumber production in 2016 was one-third of what it was in 1989.
Clearly there is a disconnect, and the underlying cause has been the limited availability of timber in the state.
There are several possible ways to measure productivity: material productivity, which is output per unit of raw material input (for example, lumber output per log input), and labor productivity, which is output per worker. In Montana, lumber overrun and lumber recovery – two measures of material productivity – increased 25 percent and 6 percent, respectively, from 1981 to 2014. This means that more lumber is now being squeezed from logs going into Montana mills – thanks to modern sawmill technology.
Not surprisingly, labor productivity in sawmills has increased over time, but there have been several flat periods and some noticeable declines, particularly during the Great Recession. Corresponding data for plywood and particleboard plants show increases as well. But labor productivity for forestry and logging workers in Montana has been declining slightly since 1990 when data tracking began (Figure 3).
It may seem odd that forestry and logging labor productivity in Montana has declined when it’s increased in other parts of the country. But timber harvests in the southern U.S. and Pacific Coast can be quite different. While Montana foresters and loggers may have access to the new technology and equipment that should increase productivity, other factors influence timber harvesting in the state, such as the landscape, environmental concerns, restrictions on the days forests and logging roads are open, and concerns about wildlife and wildfires are but a few.
Employment and Labor Earnings
Figure 4 presents Montana’s wood products employment and (inflation-adjusted) labor earnings. It takes only a quick glance to see the downward trend over the past three and a half decades, mirroring the trends in timber harvest and lumber production. Employment and earnings decreases began in the 1990s, and there were a number of mill closures through the 2000s. During the Great Recession, there was a pronounced drop off, with only a modest recovery since.
During the most recent post-recession period, Montana’s forest industry employment was only 2.7 percent higher than its low point in 2010. Labor earnings were 17 percent higher than the 2011 low. Most mills in Montana have been running only one shift for years because they’re unable to obtain a sufficient number of logs to add a second shift. Thus, many Montana mills have been operating at only 50 to 70 percent capacity during periods of high nationwide lumber prices.
Statistical techniques were used to quantify the relationships among Montana’s wood products employment, labor earnings, timber harvests (log supply), sawmill labor productivity and national lumber prices (a measure of demand for wood products).
The most important factor influencing forest industry employment in Montana was found to be timber harvest. Statistical analysis estimated that the timber harvest was four times more important than labor productivity. National market conditions (demand) as measured by U.S. lumber prices were not significantly related to Montana’s forest industry employment. The analysis found no statistical relationship between forest industry labor earnings and labor productivity or U.S. lumber prices. Only Montana’s timber harvest was related to forest industry labor earnings.
These findings are important because they demonstrate that the log supply situation in Montana is the most important factor causing the reduction in forest industry employment and labor earnings. Also, given log supply and U.S. market conditions, increasing labor productivity in sawmills increases forest industry employment in the state and does not lower it. This dispels the myth that productivity gains are driving Montana forest industry employment declines.
Clearly the trend in Montana’s timber harvests, which has been dropping since the late 1980s, has been the major cause of declining employment and labor earnings in Montana’s forest industry. Taking increased milling productivity and lumber prices into account, timber supply is still the most important factor determining its size and economic contribution.
With substantial increases in timber availability, as suggested by the chief of the USDA Forest Service, as well as national forest system officials in Missoula’s Region 1 office, the forest industry could grow, employ more workers and generate more labor earnings. And perhaps more importantly, with a stable or growing forest industry, Montana could increase its ability to manage its forests and help reduce wildfire risks.