Planning Decisions, Inc.

THE BOTTOM LINE FROM CHUCK LAWTON

The Benefits of a Dynamic Labor Market

Published Saturday June 14, 2008

Focus on the journey, not the destination.
~ Greg Anderson

Ask just about anyone what the goal of economic development is and the answer you’re likely to get is, “Jobs, good jobs, high paying, secure jobs, jobs in stable companies that provide benefits.”

Then look at the regions and companies with the fastest employment growth, with the most dynamic economies, with the greatest opportunities for finding new jobs. What you see is not stability and security, but instability, constant change and lots of movement. The central element of a dynamic economy is a dynamic labor market.

And we don’t have to go to Silicon Valley to see the evidence of this fact. Consider, for example, two major Maine industries—the poster child for declining manufacturing, the paper industry, and the poster child for continuous growth, the health care industry.

From the first quarter of 2001 through the second quarter of 2007, Maine’s paper industry lost nearly 14,000 jobs, a decline of 33 percent. Over this same period, the average monthly earnings of all employees rose 11 percent, but the average earnings of new hires fell 14 percent. The quarterly turnover rate for the period—meaning the ratio of new employees and fired or departed employees to stable employees—averaged just 4 percent. In short, while overall employment fell, those able to keep their jobs enjoyed rising wages and a relatively stable workplace.

By comparison, Maine’s health care industry is a picture of turmoil. Over the same 26-quarter period, the industry grew by 16 percent, creating nearly 14,000 jobs. Average monthly earnings of all health care employees increased 29 percent, but average earnings for new hires grew even faster at 31 percent. At 8 percent, the industry’s turnover rate was double that of the paper industry. Over the 26 quarters measured, the number of separations—people leaving a job, voluntarily or involuntarily—averaged nearly 11,000, and the number of new hires averaged nearly 10,000. Job creation—more jobs at existing enterprises plus the creation or movement of new enterprises into the state averaged about 3,500 quarter after quarter after quarter. In short, employment growth is not a simple matter of existing enterprises getting more business and adding more jobs. It is, rather a messy process of people leaving one job for another, of employers scrambling to fill both new and old positions and of workers attempting to build careers in a rapidly changing labor market. Stability is not the word to describe this industry.

Now consider Maine’s fabricated metals industry. Over the same 2001 to 2007 period, it presents two entirely different stories. From the first quarter of 2001 to the fourth quarter of 2003, industry employment fell by nearly 1,100 jobs a decline of 20 percent. The pattern of wage change here resembled that of the paper industry—average earnings for all workers rose 12 percent while average earning for new hires fell 22 percent. If you had and could keep a job, you did OK, but getting a new job wasn’t so easy or rewarding.

Then, from that last quarter of 2003 through the second quarter of 2007, the story was exactly reversed, and the industry took on the pattern of the health care industry. Employment grew by 17 percent, nearly regaining its 2001 level. Average earnings for all employees grew by 4 percent, but earnings for new hires grew by 22 percent, reflecting the growing demand for trained and trainable workers. The only constant over both periods was the turnover rate. It remained steady at about 8 percent—closer to the health care pattern than to the paper industry pattern.

So what can we learn from this quick look into several labor markets? The answer, I think, is that the journey of economic development is not a simple, straightforward path. And the dream of stable, high-paying jobs popping full blown into neat little industrial parks scattered across the state is an illusion. Economic development is a messy business. It involves lots of disruptions—both for enterprises that are growing and for those that are declining. Indeed, even decline—at least in terms of employment—does not mean death. Good jobs in the paper industry remain and—if we care for our forests and work to lower energy costs—will continue to be an important pillar of our economy. There just won’t be as many of those jobs as there used to be.

In short, acknowledging the confusion of the journey and assisting those looking for road maps is more important than dreaming of the ideal destination.

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