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Labor Pains

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I’ve taken my cars to the same mechanic since moving to Alaska in 2003. The ownership of the business changed hands a couple of years ago when a longtime employee purchased the business from the founder, but the great service and quality work has stayed the same. I dropped into the shop at the beginning of October to schedule an oil change and my seasonal tire swap. I thought I was being pretty slick by beating the rush. I told the scheduler what I was looking for and he said that the business was booking appointments four weeks out for November 1st. I’m going to admit I was a bit incredulous; I was scheduling an oil change and a tire swap not planning for knee surgery. I asked what was driving the backlog given that we hadn’t even had a hard frost and snow flurries were a bit like unicorns and the scheduler told me “labor shortage.” Apparently there aren’t enough mechanics in town particularly when your business is too small to provide health insurance.

So, my curiosity is piqued with respect to our labor force because this business isn’t the only one I’ve run into recently that’s having trouble finding qualified labor right now. Within the last month I ran into an acquaintance who runs a professional service firm; he said he felt that currently his only hiring option was to poach from another firm because there just isn’t the qualified pool of labor here that there used to be and they weren’t getting applications from the Lower 48 anymore. I’ve got a couple more examples that follow these same songs, but not the space to write about them.

So, what’s going on with our labor force? The short answer is that it’s getting smaller and the rate at which Alaskans who are of working age are participating in the labor force is also falling. The Alaska Department of Labor and Workforce Development (ADOLWD) just covered the labor force in their most recent issue of Alaska Economic Trends. They estimate that the number of Alaskans in the labor force has fallen from just under 367,000 in 2011 to just over 351,000 this past summer; that’s a decline of just under 5 percent. A similar shift is showing up in the number of our unemployed which has fallen from over 25,000 to under 20,000. In fact, the number of Alaskans considered unemployed is at its lowest level in over a decade. Yes, you read that correctly; even though we just finished a major recession the number of unemployed Alaskans is lower than it was before the recession began. We lost roughly 12,000 average monthly jobs between 2015 and the end of 2018, but the number of unemployed Alaskans dropped by roughly 2,000.  

Another challenge noted by ADOWLD is that not only is the labor force falling but the percentage of eligible residents who join the labor force is falling as well. We would normally consider those between the ages of 16 and 65 to be eligible for the labor force, but fewer of them are choosing to participate in the labor force at all. Prior to 2015 the decline in labor force participation was both a national and state trend, but the improving national economy has stabilized national labor rates. However, here in Alaska the labor force participation rates have continued to fall and are now at just below 62%, just below the national average.

So, overall what’s happening here? I don’t have all the answers for sure, but there are a couple of underlying trends which are shrinking the labor force and putting the squeeze on employers. Here are my guesses:

  • Outmigration– Through the end of 2018 Alaska has experienced six consecutive years of net outmigration. These six years will almost certainly be joined by a seventh year at the end of 2019. The state lost nearly 8,900 residents in 2017 and another 7,300 in 2018 so the pattern shows no real signs of slowing down (yet). Overall, the state has lost over 33,600 residents in this most recent period of outmigration, which is significant, but substantially less than the 44,000 lost to outmigration between 1985 and 1989.
  • Aging Labor Force– Our labor force is continuing to age and we’ve yet to see the peak of baby boomer retirements. The baby boom peaked between 1957 and 1961 with 4.3 million births per year. These workers will be hitting 65 between 2022 and 2026. While nationally more than 10,000 boomers are retiring every day we’re a couple of years away from “peak retirement” which also means peak labor force loss.
  • The Recession Itself– When recessions extend for years job seekers can become discouraged and simply leave the labor market. It took years of growth in the national economy to bring people who’d left the labor force back into it. Employment in the US has been growing for a decade, but it is only within the last couple of years that sustained economic growth pulled many people back into the market. Paradoxically, unemployment rates can rise as people get pulled back into the market because to be included in unemployment rates you must be actively searching for employment.
  • The National Economy– The unemployment rate is 6.2 percent in Alaska and 3.7 percent in the US. The state is 48th in job growth and 49th in private sector job growth. Other pastures are going to appear greener to a lot of folks. Enough said…
  • The Education Race– The ADOLWD article notes that labor participation amongst the young is falling, but it doesn’t explore the “why” and leaves the question for future research. The old formula for kids old enough to work was to finish school for the year and get a summer job. Today’s students have many choices in addition to finding paying work that range from summer school with their local school districts to summer programs designed for high school students at universities. I personally believe that the increasing competition for spots at select universities is pushing some students away from paid work towards experiences that might allow them to explore intellectual interests, enhance their college applications, or develop trade skills. I’ll also toss in there that when economies are in recession the young tend to get pushed from the labor market as adults compete for jobs.

Jonathan’s Takeaway: Challenging economic times don’t mean challenging times for every worker. Current conditions in Alaska can be strong for qualified workers; personal wage growth in Alaska was up 4.6 percent year-over-year and employers in many industries are competing for a depleted labor pool. For their part, employers are stuck between a rock and a hard place; business is good but not great, and labor isn’t cheap. Businesses may be stuck paying premium prices without the ability to pass those prices on to customers.

Jonathan King is a consulting economist and Certified Professional Coach. His firm, Halcyon Consulting, is dedicated to helping clients reach their goals through accountability, integrity, and personal growth. Jonathan has 23 years of social science consulting experience including 16 years in Alaska. The comments in this blog do not necessarily represent the view of employers and clients past or present and are Jonathan’s alone. Suggested blog topics, constructive feedback, and comments are desired at askjonathan@apcm.net.

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