Was 2022 the year of the worker shortage?

Minnesota hit its lowest unemployment rate in recorded history this spring, later reaching the lowest jobless rate of any U.S. state. Unemployment has ticked up in recent months, though there remains three job openings for every person looking for work. Wages have been rising at a faster pace as workers have more bargaining power.

State lawmakers have a $17.6 billion projected budget surplus when they return to the Capitol on Jan. 3. Advocates have made various proposals to address the tight labor market: subsidizing child care to incentivize more parents to return to work, airing television ads in other states to lure new residents, and lowering taxes on businesses that invest in automation.

“I have talked to lots of senior managers who have had to forgo expanding in the Twin Cities because they didn’t think they could hire enough people,” said Myles Shaver, a University of Minnesota professor who studies the region’s headquarters economy. “That’s one of their biggest concerns.”

Hard to hire

In Maple Plain, water systems company Bergerson Caswell is booked out several months for some of its services. Demand for geothermal technologies and well drilling seems poised to increase in 2023, as money from the federal infrastructure law hits the state.

The company’s president, David Henrich, has struggled in his efforts to add five workers to his 20-person payroll. He’s raised his starting wage by close to 30% over the past two years, from $18 an hour to roughly $25. But outdoor labor isn’t appealing to everyone, Henrich said.

“I haven’t heard anything that’s been successful (to hire in the industry),” Henrich said in an interview. “It’s just been completely random. People who have been successful, it’s been the right place, right time.”

In November, Minnesota had about 71,000 unemployed workers and 210,000 job openings, according to state and federal estimates.

There are signs that the tight labor market is cooling. The ratio of job openings to unemployed workers has been slowly shrinking since the summer, when there were four openings for every unemployed worker. State economists predict a mild, three-quarter recession that may have already started.

But short-term economic slowdown aside, Minnesota has a structural problem because of an aging workforce and lower birth rates, state demographer Susan Brower said. 

“We expect almost no growth in the workforce moving forward. This is the point where I know some of you might want to put your heads down on the table,” Brower told business leaders at a Minnesota Chamber of Commerce event this month. “The number of people we have available to work today in Minnesota is very close to the number of people we will have in 10 years, 15 years, and 20 years unless we see some pretty big changes that we haven’t seen in our recent past.”

At the Capitol, lawmakers in both parties have named workforce issues among their top priorities for the 2023 session.

Child care costs

Democrats who will take full control of the Legislature in January say that a child care shortage is part of the problem. The state is 80,000 to 90,000 slots short, state economists have said.

Advocacy groups are floating proposals to cap daycare costs at 7% of a family’s income, using state subsidies to cover the rest. The state could also subsidize daycare workers’ wages. 

Corinne Freedman Ellis of St. Paul temporarily left the workforce this spring because of how expensive child care was for her 4-year-old daughter and 1-year-old son. Her take-home pay was $1 less per week than daycare costs, she said.

“We felt really conflicted about it,” Freedman Ellis said in an interview. “I never saw myself as someone who would stay home with the kids and forgo a career. I’ve always been very career oriented, so it’s been a little bit of an identity shift.”

She said an income-based cap on child care costs would be life changing. “That takes revenue — but we have revenue here in Minnesota (with the budget surplus),” she said.

Democrats are also calling for a paid family and medical leave program that guarantees workers will get paid if they have to miss work to care for a sick family member. The program would require a payroll tax increase, and it’s drawn opposition from some business groups and Republicans.

Business groups like the one that David Henrich belongs to are calling for tax cuts.

“We need to look at the tax structures in this state, let companies put more of their money back into their own resources, back into their people, and back into the equipment that makes the jobs easier,” he said.

Out-of-state recruiting

As the state’s Fortune 500 companies try to recruit workers, data indicate that Minnesota does a bad job of getting people to move here — but a great job at getting them to stay.

Shaver has conducted more than 2,700 interviews with professional managers. He found that people move to Minnesota for job opportunities without expecting to enjoy living here. The quality of life, including good public schools, convinces them to stay, Shaver said.

“This notion that it’s hard to get people to move here, yeah, you can see that in 40 years of data easily,” he said. “But the retention rates are amazingly high. That’s been the counteracting force.”

As they move between local companies, professional managers share best practices and grow smaller firms into bigger ones, Shaver found. That’s one explanation for why so many of Minnesota’s Fortune 500 companies are homegrown, he said.

So, can Minnesota convince more workers to move here? Some, including Gov. Tim Walz, say the state needs to try harder.

This month, Walz floated the idea of running TV ad campaigns in other states to recruit new residents. Minnesota currently has a recruiting website, JoinUsMN.com, but no budget to promote it.

“II think it’s fair. A lot of states do this,” Walz told reporters. “I hate seeing these advertisements from other states. We have a lot to offer. I think we should be putting that out there.”