Slow Work Force Growth: A Challenge for the Midwest?

By Kaglic, Richard E.; Testa, William A. | Economic Perspectives, Summer 1999 | Go to article overview

Slow Work Force Growth: A Challenge for the Midwest?


Kaglic, Richard E., Testa, William A., Economic Perspectives


Introduction and summary

During the mid-1980s, demographers and work force analysts began forecasting slower work force growth and tighter labor markets as the last of the so-called baby boomers entered the work force and rising female work force participation began to level off (Johnston and Packer, 1987). Employers were warned that the shrinking pool of new workers, along with their increasing diversity, would present new challenges in obtaining and managing a productive work force. In the Midwest, such concerns seemed very remote. Throughout much of the 1970s, 1980s, and very early 1990s, employment demand was weak and migration of workers from the Midwest was the norm. In the late 1990s, however, labor market conditions have changed significantly. Currently 3.0 percent, Midwest unemployment has consistently ranged between 0.5 and 1 percentage point below the national average over the last five years. And many business executives in the Midwest report "finding good help at current wage offers" as the most vexing of current problems (Bank of America, 1998).

In this article, we examine whether the current tight labor markets in the Midwest are likely to continue. We conclude that, although a part of this labor market tightness is transitory, the Midwest will experience slower work force growth accompanied by continued strong demand for workers.(1) After a severe shock in the early 1980s, the region's mainstay industries have restructured and found ways to compete. Auto and truck production have reconcentrated in the mid-section of the nation due to a complementarity between the industry's new emphasis on just-in-time delivery and the region's advantageous location and dense highway infrastructure. Supply-side limitations also suggest labor market tightness will continue. The region's robust work force growth of the past ten years has come about, to a significant extent, through reemployment of an underemployed population rather than new workers. Net migration of workers from other regions and other countries does not appear to be as significant in the Midwest as in many regions of the South and West. Meanwhile, like other regions, the Midwest is expected to continue to experience a tepid pace of entry of young adults into the work force. What are the implications of ongoing labor market tightness for the region's businesses and policymakers? Because tight labor markets bring both benefits and costs, policy initiatives to stimulate work force growth will not be uniformly favored. For example, while business and property owners might favor policy actions to encourage workers to migrate to the region, such measures might adversely affect Midwest workers by putting downward pressure on wages. On the other hand, workers have much to gain from tight labor markets - rising real wages and incomes and better job opportunities. Despite these reservations about expanding labor supply, work force growth can benefit indigenous workers, particularly in areas where population growth may be needed to sustain declining towns, cities, and industries. In addition, incoming workers with specific skills may help generate demand for groups of indigenous workers with related or complementary skills who may be underemployed.

Policies to ease labor-constrained growth by expanding the skills and education of the region's existing population may be less contentious than those aimed at boosting migration. Such policies are also more likely to raise wages and per capita incomes on a sustained basis, because they are based on improvements in worker productivity. Labor market participation rates may also be increased through improvements in transportation between inner cities and suburbs offering new job opportunities and other programs that facilitate the entry of low-income groups into the work force.

Midwest labor market tightness: A transitory problem?

Now into its ninth year of expansion, the U.S. economy is enjoying the longest run of uninterrupted growth in modern history. …

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