Minnesota is on the verge of not having enough workers.
Two Stooges Sports Bar and Grill in Fridley employs about 40 people, but co-owner Greg Asproth thinks it needs another five to eight. He is advertising for them, but getting few responses.
“Sometimes you just kick in and do more whether you’re an owner, a manager or an employee,” he says. “And sometimes you’re short-staffed and there’s nothing you can do about it.”
The restaurant, which also has one of the largest and most popular pool halls in the Twin Cities, has been open for 30 years, long enough for Asproth to experience several turns of the economic cycle. But not like this one.
Minnesota’s economic agency reported last fall that there were more job vacancies — just under 123,000 in a state that employs nearly 3 million people — during the first half of 2017 than at any time since it started measuring in 2000.
Employers find themselves in a pinch unlike anything they’ve encountered for decades. Many are eager to hire, with the economic expansion now well into its ninth year. At the same time, participation in the labor force is steadily shrinking as baby boomers move into retirement.
Many are opting to leave jobs open rather than offer more money, as persistently low inflation makes it difficult to charge customers more.
A Star Tribune analysis of the state’s data found that during 2016 and 2017, the overall increase in job openings was mainly driven by a bigger-than-usual jump in unfilled jobs that pay less than $15 an hour.
The ultratight labor market could go on for a while but not forever, as the economy will inevitably soften.
Economists are watching Minnesota for signs of whether inflation has to kick in for businesses to raise wages that will attract more workers, a perception that could ripple into decisions about interest rates and stock prices.
Meanwhile, employers who count on an ample supply of low-wage workers are starting to wonder whether they need to change their business model.
Two Stooges’ Asproth said he’s uncertain what will give first in the competing forces — workers wanting higher pay and customers wanting lower prices — that shape the profits and viability of restaurants and other low-wage employers.
“There probably will be a time where there’s going to be a lot of people looking for work and a lot of qualified people again,” he said. “But the wages by then could be at a level that is unsustainable for a restaurant like ours. I can only guess which way it’s going.”
Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said he regularly asks business owners about hiring and wages when he travels around the northern states the bank oversees. He pays special attention to bosses who tell him they can’t pay workers more because they’re unable to raise prices to cover the cost of higher pay.
That shows inflation being suppressed, a consideration for Kashkari and other Fed leaders in setting the nation’s interest rates.
“I’ve started asking people, `When is the last time it wasn’t like this?’ The most common answer I get is 2009 or 2010, plenty of labor,” Kashkari said in an interview last month. But those were the years when the country was just coming out of recession. “That’s nothing we aspire to from a public policy perspective,” he said.
No one now working has experience with such a tight labor force. In the 1960s and ’70s, when today’s newly retired were just starting their careers, the huge baby boom generation along with women of all ages were pouring into the workforce, leading to a rapid expansion of jobs. That supply gave businesses far more choices for workers. Unions eroded and wages fell. Even in the booming 1990s, the supply of workers remained high.
But now, the baby boomers are heading into retirement and there’s a much smaller number of people in their teens and 20s to take their place, leading to a shrinkage in the labor force as a percent of the population. Some people have taken themselves out of the force thinking they can get by on government and charitable assistance. And a smaller number are out because of problems with addiction, mental health or criminal histories.
The low-pay end of the force has come under the most pressure. With vacancies happening at all levels, some people in low-wage jobs are moving up the ladder. And the decadelong decline in legal and illegal immigration has also reduced the number of people available for those low-wage jobs.
As a result, the sidelines are clearing except for those who need the most help entering the workforce: people with transportation or child care issues, or those who are exiting addiction treatment or prison.
Bill Bridgeman, director of employer services at Twin Cities Rise, a Minneapolis provider of job search and training assistance, said fewer people are coming to the organization for help these days but those who do require more of it. “Seventy to 80 percent of the individuals we see face major barriers to employment,” Bridgeman said.
The textbook response in a tight labor market is for wages to rise. Halfway through 2017, Minnesota’s overall wages were up 4 percent from a year earlier, well above the 2 percent growth nationwide. And the average wage of the vacant jobs has also been rising, though the increase to an average of $14.39 last year was smaller than it had been for several years. In part, that’s because the outsized jump in vacancies of sub-$15 an hour jobs weighed down the average.
While the wage gains so far haven’t offset the growth in vacancies, they may be starting to accelerate. Just last week, Walmart Stores Inc., the nation’s biggest private employer, said it would lift its starting pay to $11 an hour. Several other large U.S. employers also announced wage increases after last month’s passage of federal tax reform.
And to be sure, many employers have more trouble finding workers at the top of the wage scale than at the bottom. C.H. Robinson, the logistics company in Eden Prairie, said it faces difficulty finding experienced software engineers, who are paid more than $45 an hour.
At the VA Midwest Health Care Network, which operates nine VA hospitals, including in Minneapolis and St. Cloud, and about 70 clinics, doctors and registered nurses lead the help-wanted list. “I don’t know that an [economy-related] trend exists for doctors,” says Jeremey Pearce, a VA human resources specialist. “It’s a constant need.”
Filling the pipeline for doctors takes years, however. And even if another baby boom began, it would take two decades for the broader workforce to feel the effects. That means today’s labor constraints will most likely ease when the next recession comes.
“The only thing you can change is demand because the workforce is just not built to change very quickly,” says Ron Wirtz, regional economist at the Minneapolis Fed.
Data editor MaryJo Webster contributed to this report.