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Economic forecast: Montana faces workforce crisis

Economic forecast: Montana faces workforce crisis

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Like a slow-moving train that everyone can see coming but has a lot of momentum, Montana is facing an impending economic calamity if something isn't done to address an expected critical shortfall of workers.

That forecast was part of a special presentation on workforce at the Montana Chamber of Commerce's annual Business Days at the Capitol in Helena on Tuesday.

Among their assessments: Due to an aging population and faster-than-average economic growth rates, Montana's labor force is not expected to keep up with businesses' demand for workers over the next 10 years. Montana's labor force is about 500,000 workers right now, but the state is expected to lose 120,000 baby boomers to retirement over the next decade.

There are only between 80,000 and 90,000 young people entering the workforce to fill those jobs in the same time period. Montana already has a low unemployment rate of about 4 percent and strong economic growth, meaning businesses are constantly searching for new workers.

The benefits of a shortage of workers -- mainly an increase in wages, where Montana ranks sixth in the nation over the last five years -- are outweighed by the negative consequences. Ultimately, businesses that can't find enough skilled workers won't be able to expand and the economy as a whole will stall. 

Already, state economists are expecting slower employment growth over the next 10 years in Montana because of the tight labor market. 

"I consider workforce development the single biggest economic development issue facing our state," said Steve Arveschoug, the executive director of the Big Sky Economic Development Authority.

According to surveys conducted by the Big Sky EDA, 62 percent of businesses in Yellowstone County say a lack of available workers already negatively affects business growth. He estimates that number is similar statewide.

"When you can't hire people or find skilled workers, you can't increase production and you can't expand," he said. "That's a drag on our state economy and our local economies. In my mind, that should be at the top of the list of issues that are wrestled with in our legislative session."

Arveschoug was among a wide array of speakers who chatted Tuesday about everything from infrastructure to entrepreneurship to the current business climate.

"Montana will have 32,500 more jobs that we need to fill in the next decade," Arveschoug said. "A big chunk of that is because we are getting older, but growth is a small part of that. We are losing 24,000 workers to retirement and we will need to add 8,000 more because of growth."

Barb Wagner, the chief economist at the Montana Department of Labor and Industry, said that Montana experienced record economic growth in 2015, and 2016 wasn't far behind. The low unemployment rate is also driving up wages.

"Personal income growth since 2006 is the 10th-fastest in the nation," she said. "Montana has had the sixth-fastest wage growth over the last five years. Wage growth grew by 3 percent last year and Montana's average annual wage is now $45,000."

Wagner said that, ideally, Montana's unemployment rate would stay at 4 percent for as long as possible.

"Workers can have a pretty easy time finding jobs, but businesses can also find workers at that rate," she said."When we were at 3.2 percent going into the Great Recession, businesses struggled to find workers."

The problem, she said, is that Montana's labor force is not going to grow fast enough over the next 10 years to support that 4 percent unemployment rate.

"We are expecting to see a 2 percent unemployment rate by 2025," she said. "And that is mostly driven by demographics."

Montana's largest age group is between 55-59 right now, and the number of young people stepping up to fill their shoes is much smaller. The state does get a net in-migration of about 3,000 workers per year, and they tend to be college-educated. 

But it's not enough.

"We are expecting slower employment growth in the next 10 years because of tight labor markets," she explained. "We are projecting .9 percent employment growth from 2018 to 2025, and in Montana the long-term average has been 1 percent since 1976."

Wagner said one solution to increasing labor participation is to get people in certain demographics – women, veterans and the disabled – to enter the workforce. There are obvious constraints to that, she said, but advances in technology and work-from-home adaptions might help the situation. Women face obstacles because they are more often primary caregivers for children, and they have less incentive to enter the workforce because they are often paid less than men.

Each year on average over the last 10 years, the state has added about 4,500 workers to the labor force through increased participation and net in-migration, but the state added 8,000 workers in 2016. The construction industry had the fastest growth rate in the state last year at 2.7 percent, but it's still going to take until 2024 for the construction industry to reach its pre-Recession peak.

"The construction industry lost 30 percent of its jobs during the Recession," Wagner said. "But it is adding 800 jobs per year now."

The health care industry is adding about 1,100 jobs a year, and the accommodations and food service industry is adding about 630 jobs per year. The total wages paid by the healthcare and education industries are the highest of any industries. There are predicted to be 445 openings for registered nurses every year in the state due to growth and retirements, and that job pays an average of $62,500 a year, for anyone thinking of a new career.

Matt Springer, the director of the RevUp Montana project, said that the state better get serious about addressing the problem.

"The skills gap is anywhere between 24,000 and 100,000 people where we won't find people qualified to fit positions," he said. "I'm not sure the urgency is there that kind of mirrors the demand that is there."

He said that the state has to figure out a way to make college education cheaper, and private industries have to attract, train and pay workers better.

Arveschoug said there are several ways to remedy the problem, including increasing worker productivity through technology and reducing the time out of the labor force for retraining.


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