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Whats going on in the Minnesota labor market?

The Minneapolis Fed’s most recent Beige Book report on current business conditions came out at the end of last month. Its summary article was titled ‘It’s not just labor quantity, but it’s also labor quality‘.

I’ve written a few times recently about how Minnesota’s supposed ‘labor shortage’ could actually be a driver of higher wages. But labor is not homogeneous. Employers do not need any old person but someone who can do the particular job. The Minneapolis Fed reports that that is easier said than done.

Labor quality comes up almost as often as labor quantity issues. A contact at a Minnesota fast food restaurant said she interviewed 16 people, and not a single person worked out…A Minnesota school district contact said, “I have worked for this school district for 13 years, and the number of applicants per position has dramatically decreased. There are times when we aren’t hiring the best person for the job, but instead we are hiring the best of the worst that applied.”

The Beige Book found that employers could benefit from being quicker off the mark.

Some employers needed to look at their own hiring process for solutions. “Employers still don’t understand how the lag in response to applications reduces their labor pool,” said a Minnesota workforce contact. He knew of one “highly experienced job seeker” who was looking to relocate and continue working as an HVAC technician (heating, ventilation, and air conditioning). The worker applied at two large HVAC companies in central Minnesota and, “after three weeks, he still hasn’t heard back from them. A few other smaller companies called him back within minutes of submitting an application. Mid-size companies with dedicated HR seem to be prioritizing other duties over hiring, or at least do not understand the urgency.”

As we’d expect to see where demand for labor is rising relative to its supply, labor compensation is rising.

Compensation also got a lot of attention from sources. Recent surveys by the Minneapolis Fed found that more than half of respondents said their company had implemented a new wage, benefit, or noncompensation improvement (e.g., flexible scheduling) in the past six to 12 months to attract needed labor or retain existing labor. Signing bonuses and other one-time pay bumps were widely prevalent. A Minnesota workforce source said a private school-bus company was paying $3,000 bonuses for drivers along with starting wages of $17 an hour. A waste hauling company was offering $1,500 for new drivers, a foundry had a sign-on bonus of $3,000, and a health care organization had $4,000 signing bonuses for registered nurses.

But raises were not always trickling up. A Minnesota convenience franchise was described as “desperate for people” and had raised starting wages to between $11.50 and $13, depending on location and need. But more-experienced employees have been expressing frustration with the idea that new hires will be making almost as much money.

The bottom line is that Minnesota’s labor market – like that nationwide – is a seller’s market right now. That’s a good thing for the state’s workers.

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

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