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Copyright 1997 by the Wyoming Department of Employment, Research & Planning


Labor and Population: The First Half of the 1990's and the Balance of the Decade

by: Tom Gallagher and Mike Evans table by: Mike Evans

While low and falling unemployment rates characterize Wyoming and its surrounding mountain and plains states, many of these same states are also low-wage states and fail to match the nation’s rate of population increase. This means that the available labor force for many states represents all of the human resources likely to be available to employers for the balance of the decade. Data for the first half of the 1990’s suggests that some states are not as successful as others in the retention of their workers (please refer to the table).

State data, recently compiled and summed to national totals, were recently released by the Bureaus of Labor Statistics and Census. These data clearly indicate that job growth in Wyoming and surrounding states outpaced the rate of growth in the nation as a whole during the first half of the decade. Even the slowest growing state, Wyoming, experienced an 11.3 percent rate of growth compared to the nation’s 6.3 percent growth rate. However, the value of labor fell in three of eight states in the region with the value of labor in Wyoming falling the furthest (-4.4%) between 1990 and 1995.

The way an economy values labor influences the probability that labor will be available in a locality. All labor is continuously "bid" by employers in the labor market with some occupations (e.g. retail sales clerks) bid only on a local basis while others (e.g. Computer Scientist) bid internationally. All things being equal (i.e. valued cultural amenities and gasoline prices in Douglas, Wyoming, compared to Lincoln, Nebraska), we can use the available measures of gross population change, employment growth and the value of labor to assess what has happened in the region during the first half of the decade and predict what the second half of the decade may look like for Wyoming.

The value of labor serves as a proxy for the value of all inputs to the production process, and thus serves as an indicator of the current value of property and locally invested capital. To understand how the value of Wyoming’s economy is progressing over time and what its potential may be, we "indexed" the real value of wages in Wyoming and surrounding states to the real (inflation adjusted value) of the average wage in the nation with 1990 equal to 100. The index has the property of: ("State Wage for the Year"/"US Real Wage for 1990") x 100. The real value of the average weekly wage in the U.S. in 1990 was $431. By 1995, the real value of the average weekly wage had risen to $435 (an index value of 100.9). Locally, the state with the most rapid growth during the first half of the decade, South Dakota, was the state with the lowest valued wage in 1990. In 1990, South Dakota’s average wage stood at an index value of 69.9 relative to the nation. By 1995, its wage level had risen to 72.4 (+4.0%). In contrast, Wyoming’s average real wage dropped by 4.4 percent during the same period.

Understanding the current relationship between the demand for labor and the stability or movement of population is a key to moving our understanding of the future from guesswork to one of probabilities. As the data for the region shows, substantial growth in either labor demand or population by itself is no guarantee of growth in the other. South Dakota’s average wage grew by 4.0 percent during the first half of the decade. However, its net population growth (4.8%) was less than Wyoming’s population growth even though the value of labor in Wyoming fell by 4.4 percent. This suggests that the index level itself and other factors, rather than merely the growth of demand by itself, are important to sustaining a population consistent with the growth of the nation.

Montana exists as a clear example of a state undergoing substantial population increase (8.9% compared to a national growth of 5.7%) while the average wage falls. The index value wages fell from 75.6 in 1990 to 74.5 in 1995. Just as growth in labor demand in the northern plains states is insufficient to produce a regionally competitive wage, population growth by itself is no guarantor of wage growth. Growth in either population or earnings by itself appears to be insufficient to induce reciprocal demographic or economic growth.

While Montana is undergoing relatively rapid population growth, apparently unrelated to the demand for labor, the Dakotas and Nebraska appear to have difficulty retaining their population and labor. All three states have exceptionally low unemployment rates; they have also experienced moderate employment growth accompanied by below par population growth during the decade. If the wage indices of the three Plains states to our north and east (equal to or less than 81.2 in 1995) are a measure of the level of labor demand required to retain a state’s labor force, it appears that Wyoming has reached the point where the demand for labor is no longer sufficient to retain its population. Indeed, Wyoming’s falling wage index during the first half of the decade (and continuing over the three quarters of 1996 for which we have data) may be responsible for the change from an in-migration of 7,285 persons from 1990 to 1995, to net out-migration from 1995 to 1996.

Idaho’s wage index (at 82.8 in 1995) has shown a growth rate three times greater than the rate of growth in the nation as a whole during the decade, the second highest job growth, and the highest population growth among all states considered. It is certainly possible that above a certain level in the measure of demand (i.e. above 81.2 and growing in real terms), employment and population move in tandem and positively. The population, employment, relatively high wage index levels and positive wage growth of Utah and Colorado suggest that these two states are experiencing a mutually reciprocating economic / demographic dynamic that move independently from the balance of the northern Rocky Mountain and Plains states.

An economy is considered at full employment when operating at potential output and the unemployment rate is equal to the natural rate of unemployment. At the national level, the natural rate of unemployment is between five and six percent, hence the unemployment rate that is consistent with a stable rate of inflation. An economy going below the natural rate of unemployment causes inflationary pressure on wages; depending upon the extent in which there is more excess demand for labor than excess supply of labor. At the state and local level, the natural rate of unemployment will vary; for example, Nebraska’s unemployment rate of 2.6 percent in 1995 is up from 2.2 percent in 1990. The excess demand for labor shows up with the increase in real wages, although with the low rate of unemployment compared with the national rate, one does not see exorbitant wage inflation in Nebraska. Over time, the natural rate of unemployment will adjust depending on the local and regional economies.

Because of their similarities and, in some cases, communications ties to neighboring states, it appears quite likely that certain parts of Wyoming will mime the labor market and population dynamics of their neighbors over the balance of the decade rather than gravitating to a more homogeneous labor market within Wyoming. As we have shown, demographic and labor markets in the states around us have substantially different experiences. The most dominant trend is toward a low wage, labor-short economy in which population retention is problematic.


Tom Gallagher is the Manager of Research & Planning; Mike Evans is a Senior Economist, supervising Bureau of Labor Statistics (BLS) programs with Research & Planning.

 


 
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