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Companies deal with pressure to raise wages in Minneapolis

On January 2, Minnesota was featured in a front-page story in the Wall Street Journal headlined “Sluggish Wages See Uptick.” The article described how—in today’s tight labor market—companies like Ultra Machining in Plymouth, Generations Hardwood Flooring in New Brighton and Kurt Manufacturing Co. in Minneapolis are dealing with pressure to raise wages.

“In U.S. cities with the tightest labor markets,” the story begins,

workers are finding something that has long been missing from the broader economic expansion: faster-growing paychecks.

Workers in metro areas with the lowest unemployment are experiencing among the strongest wage growth in the country. The labor market in places like Minneapolis, Denver and Fort Myers, Fla., where unemployment rates stand near or even below 3%, has now tightened to a point where businesses are raising pay to attract employees, often from competitors.

Nationally, the article explains, wages have been stagnant for the last two years, despite the fact that the unemployment rate has fallen to its lowest point in 17 years. But the current economic boom is changing that.

Minneapolis has the lowest unemployment rate of any large metro area in the country—just 2.3% in October 2017, according to the Journal. Weekly wages for private-sector workers here rose by more than 4% from a year earlier during the second quarter, according to the U.S. Labor Department. The Journal quotes Dr. Laura Kalambokidis of the University of Minnesota:

‘I see the state and the Twin Cities as a bellwether for the rest of the country,’ said Dr. Kalambokidis, a professor at the University of Minnesota.

The fiercest competition for workers in the Twin Cities is in industries like construction, manufacturing and information technology, the Journal says:

‘In our industry at this time, money talks,’ said Jaci Dukowitz, head of human resources at Ultra Machining Co., a family-owned precision-machine shop in Monticello, Minn., that makes parts for medical device makers and the aerospace industry.

In 2014, business was so good that Ultra Machining decided to add more weekend shifts to keep parts rolling out the door seven days a week. But it couldn’t find the staff.

The company offered 25% more pay for weekend work. Still, no takers. Then, Ultra Machining offered a $5,000 hiring bonus. At its peak, the program attracted 12 machinists for the weekend shift. Today, it’s down to just six. The company also added a $2,500 retention bonus for every year a worker stays on the shift, in the hope of slowing turnover.

Employers are experiencing similar pressures in large metro areas like Denver, Austin, Texas, and San Jose, California. These areas also have unemployment rates under 4% and are experiencing wage growth at least double the 2% national average.

The Journal profiles two other Minnesota companies that are grappling with upward wage pressures:

Patrick Grimes, owner of Generations Hardwood Flooring LLC in New Brighton, Minn., said his two lead workers told him last summer they were leaving to start their own company. He offered each a $10,000 raise, putting their salaries at $75,000 a year, and started covering 100% of their health-insurance premiums. Both men stayed.

Kurt Manufacturing Co. in Minneapolis is the second company. Its president and CEO, Steve Carlsen, told the Journal that the tight labor market has made him “almost go into a panic:”

One of the company’s machinists, Juste Dabout, said he recently received two phone calls in one week from competitors asking if he’s on the job market. The 40-year-old said no, but that he would send over machinists he knows without a job. One problem: He doesn’t know any.

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