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A ‘shortage’ of workers in Minnesota is driving wages up

Last week I wrote about apparent contradictions in the coverage of Minnesota’s labor market. On the one hand, we have the good news that wages in the state are rising after a prolonged period of stagnation. On the other, we have the bad news that there is a shortage of workers in the state. Of course, the truth is that, in large part, the rise in wages is a result of the supposed shortage of workers.

Decreasing labor supply and increasing wages

The chart below illustrates the point.

Figure 1 – Labor supply curve

To the left of the chart, where employment is low (high unemployment), wages are low. But, as employment starts to creep up (and unemployment falls) and we move to the right, wages start to increase. Increasingly, workers are relatively scarce and employers need to bid against each other to hire them. This shows why, from the point of view of the average Minnesota worker, the supposed ‘labor shortage’ isn’t the grave crisis some make it out to be.

We see another example of these market forces at work in the Star Tribune today.

Upward of 150 private events and parties are set to kick off on Super Bowl week, and organizers are facing a battle with an unexpected foe: the estimated 2.4 percent unemployment rate in Minneapolis.

Event organizers looking for cooks, dishwashers, servers, bartenders and security personnel are having difficulty filling open positions.

“It’s absolutely crazy,” said Jerome Gerber, vice president of Award Staffing, which has turned down hundreds of staffing requests. “The companies that were coming in to manage the Super Bowl and manage all these events didn’t have a proper understanding of the pay rates they were going to need to operate within the Twin Cities marketplace.”

The organizers of one large downtown event called Gerber and asked him to help them find 1,000 workers. The pay? $11 per hour.

“We told them no. It wasn’t worth the effort,” Gerber said. “We’ve turned down every job that wasn’t paying a minimum of $16 an hour simply because of the competition that week.”

So why the stimulus?

And, again, we have some confusing contradictions here. Last week, Gov. Dayton unveiled a $1.5 billion bonding bill. This would borrow money to spend “on upkeep at public colleges and universities, expanding affordable housing options and improving water infrastructure across Minnesota”, according to WCCO.

Curiously, the governor’s office also boasted that the bill’s spending would create an estimated 22,950 jobs. With unemployment so low and wages rising, do we need Gov. Dayton to be ‘creating’ these jobs? Other employers seem to be doing a good job. Too good, if you listen to those worrying about a looming labor shortage.

A shrinking workforce can be bad for an economy if productivity doesn’t increase to maintain output levels as workers disappear. But the key point there is, as we have said before, productivity. That remains the key issue facing Minnesota’s workers.

John Phelan is an economist at Center of the American Experiment. 

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