Tackling Montana’s Workforce Shortage

If you travel across the state and talk with Montana’s employers, you will hear frequent complaints about their difficulty finding workers. Montana’s unemployment rate is low at 3.9 percent and even lower in Montana’s metro areas, like Missoula at 3 percent and Billings at 3.1 percent. Given these data, it is not surprising that Montana’s employers report they are having a hard time finding skilled workers.

This struggle will likely be a common theme over the next several years. There are 223,000 Montanans between the ages of 50 to 65, but only 199,000 between the ages 10 to 25. As such, the cohorts aging out of the labor force are larger than those aging in.

While automation and other economic changes may offset some of the forecasted labor shortages, several communities have undertaken their own workforce studies or other workforce efforts in an attempt to improve their situation.

Montana’s effective workforce depends on its population, their skills and overall participation. Thus, growing the state’s labor pool requires population growth, skill growth and/or increased participation. But how much potential does Montana have to improve in each of these areas?

Montana’s labor force participation is relatively high. Nearly 80 percent of prime-age workers in Bozeman, Billings, Missoula and Helena are employed. Each of these areas ranks in the top 10 percent of metro- or micro-areas. As such, Montana’s ability to grow a workforce through greater participation is limited.

In theory Montanans, like any group, could increase their skills and be more productive. However, getting people to invest the time and effort in acquiring new skills remains challenging. It is also difficult to ensure that the correct training opportunities are available and delivered effectively.

It’s also plausible that there are people living elsewhere who could be better off living and working in Montana. For instance, Montanans tend to have a strong affinity for the state, yet many native-born Montanans do not live here. There are 106,000 college-educated, native-born Montanans aged 25-64, who currently live in other states. There are thousands more who have lived here or who have visited and do not currently live here. Some fraction of these people would likely be better off living and working in the Treasure State.

Tapping in to this potential labor force could help address workforce shortages. However, we do not know how many such people exist, nor do we know where to find them. We also have limited tools designed to help persuade those individuals that they could be better off living and working here.

Thus, while it may be possible to address Montana’s workforce challenges through some combination of talent attraction and training, there is a lot of work to do to create systems that will effectively increase the state’s workforce.

It might also be possible to reduce workforce challenges by employing Montana’s existing workforce more efficiently. In other words, it is possible that some workers are employed in areas that do not fully utilize their skills. If this occurs Montana could, in theory, increase its output by shuffling workers among jobs.

But how can we do any of this? Successful workforce initiatives require a clear understanding of which employers are struggling to find workers and why. Only with such an understanding can Montana target, create or move workers to satisfy its actual needs.

There are three standard reasons why an employer may fail to find someone qualified to take the job they are offering:

1. Mismatch: There are people qualified for the job offered who would be better off (happier, earn more, etc.) taking the job, but they don’t do it.

There are a couple of reasons why mismatch can occur. First, there may be an information problem. People may fail to take a better job because they are unaware of it. Second, there may be an evaluation problem. People might be aware of the job, but they may fail to understand that they will be better off taking it. Third, there may be a risk issue. People might understand taking another job could make them better off, but they are uncertain whether they will be and they are risk averse.

Solving mismatch issues entails providing better information – better information about job opportunities; better information about job conditions; and better information about life in Montana. It also entails collecting more information about those who might benefit taking a different job or be happier moving to Montana.

2. Skill shortage: There are people who would be better off taking the job, but they lack the necessary qualifications or skills.

There are two scenarios where people fall short of their optimal job due to a lack of skills. First, people could misinvest. That is, people could make mistakes about which skills to invest their resources in acquiring. Second, people could under-invest. That is, they could be better off investing in certain skills, but they choose not to make the necessary investments.

Solving skill shortages entails helping people avoid mistakes and/or figuring out how to get people to invest in acquiring new skills. It also entails making sure that the correct training and education opportunities are available and affordable, and that these programs are well connected to potential employers.

3. Inability to compete: Qualified people do not want a job because they are better off taking a different job (or not working at all).

The attractiveness of a job reflects the job’s characteristics (wages, working conditions, etc.) and community characteristics (cost of living, quality of life). A company’s failure to attract workers could reflect any one of these factors (or a combination of them).

Making employers more competitive means increasing their productivity, which may allow them to pay higher wages or offer improved working conditions. It also means lowering the cost of living in an area or improving the local quality of life.

The broad solutions to each problem are straightforward, however it is not clear which problems apply to which employers. Only by talking to potential employees can one distinguish among these various possibilities. Only workers themselves can reveal what they did not know about potential job opportunities; that they didn’t pursue an opportunity because they did not feel they had the right skills; or that they did not find the potential opportunity appealing.
Thus, a deeper understanding of a worker’s perspective of Montana jobs is an essential step in developing policies that might help the state’s employers draw from a larger, better pool of potential employees.