“Throughout the recession and continuing economic slowdown, Montana’s unemployment rate has remained consistently below the nation’s. Recovery is occurring, but occurring only slowly. But as the recovery continues and expands, the question becomes – where is the economy going in the future? By looking at patterns of growth going into the slowdown, we can gain insights into where the growth will occur in the future. It is very likely that, just in a few short years, many areas in the Rocky Mountain West will be looking at 2 to 3% unemployment rates and very tight labor markets.” – Larry Swanson
Study tracks job growth in Montana, pre- and post- recession, where the jobs are--and aren't--and how
an aging population will affect the workforce
By Larry Swanson, director
O'Connor Center for the Rocky Mountain West
University of Montana
for Mountain West News
Jan. 23, 2012
This article summarizes major findings from a two-year study of job growth trends in Montana which further identified where jobs will most likely increase over the current decade. This article focuses on dominant trends underlying job growth in Montana. The study was funded by the U.S. Dept. of Labor through a grant to the Montana State AFL-CIO and was completed last summer.
Montana’s and the national economies continue to languish in a slow recovery following one of the deepest economic recessions in the nation’s history. Unemployment rates in Montana remained well below those of the nation as a whole during the economic downturn and since then, and are now steadily falling. The state and region were largely spared from higher unemployment rates because of the strength and momentum in their economies going into the recession, which officially began in December, 2007.
The Rocky Mountain West’s economy had experienced almost uninterrupted growth for more than a decade and a half. Four of the five Rocky Mountain West states (Utah, Idaho, Colorado, and Montana) ranked in the top 10 states for total employment growth between 1990 and 2007. The fifth state, Wyoming, ranked 11th. Four of those five states also ranked in the Top 10 in total personal income growth over the same period, and the fifth, Montana, ranked just behind the other four at 14th.
And when you look at growth in per-capita income--one of the single most used indicators of economic well-being --three of the five Mountain West states were in the Top 10 in percentage per capita income growth, including Wyoming, Utah, and Montana (ranked 7th). Colorado ranked just behind these at 11th and Idaho ranked 30th. So, going into the recession, states in the Intermountain West all had relatively fast-growing and steadily improving economies. And the multi-state region made up of these five Rocky Mountain West states was the fastest-growing regional economy in the nation.
Because of this fast growth, some areas in the region with particularly fast-growing economies had unemployment rates less than 2 percent as the recession began. It’s important to note that a “full-employment national economy” is one where unemployment is at about 4 percent. This moderate level of unemployment allows for the constant movement of people in the labor force between jobs. So there is always some unemployment. When unemployment falls to 3 percent and lower, this is indicative of an increasingly “tight” labor market – one where there oftentimes are more jobs than people to competently fill them.
While in this slow economy, Montana’s attention has been focused like a laser on job creation, in only a few short years with continuing steady recovery in our economy, we will once again become increasingly focused on finding the workers we need as labor markets tighten. This condition will be further aggravated going forward by the fact that our population is steadily aging and this aging will soon result in as many or more persons leaving the labor force as the number entering.
As this occurs, our attention will be focused less and less on simply creating jobs and more and more focused on getting as much as we can from the workforce that we have. This will focus our attention on training and education necessary to make our workforce as relevant as possible for our changing economy and as plentiful as necessary for the economy’s “best jobs” – those that pay the most and the ones that require the most training, education, and experience – and as productive as possible. As we approach this new reality in the next several years, it’s important to note recent trends in job growth in Montana; trends that are very likely to continue to play out in the future as our economy recovers and grows.
Dominant trends shaping changes in the Montana economy
In the more than decade and a half leading up to the recession, four dominant trends characterize restructuring and change in the Montana economy.
First among these was the general stagnation, if not decline, in natural-resource industry income and employment even as growth increased in other areas of the economy, resulting in an economy today and going forward that is increasingly less and less dependent on natural-resource industries for its growth.
Natural-resource sectors include farm and ranch production; lumber, paper and forestry services; oil and gas extraction; other mining including mining services and support activities; petroleum refining and pipelines; and primary metals manufacturing.
Jobs in these industries combined as a share of all jobs in the state have steadily declined, falling from over 15 percent in the early 1980s to less than 10 percent in the late 1990s and to less than 8 percent more recently.
When you focus only on jobs in energy sector alone -- ones in electric utilities, oil and gas exploration and extraction, petroleum pipelines and refineries, mining support services that include oil and gas, and all coal mining -- these energy jobs together accounted for less than two percent of all jobs in the state in 2010, which is about the same share as two decades ago in spite of some recent growth. If you look at labor earnings (all income from work) rather than employment, the natural-resource industry’s share of total income has fallen from almost 19 percent in the early ‘80s, to 17 percent in the early ‘90s, and to around 9 percent more recently.
This reflects major restructuring across industries in Montana and a long-term movement away from narrow economic dependence on longstanding natural-resource sectors, in spite of recent increases in some energy sectors. These shifts must be recognized in planning and targeting directions in workforce development and education.
Second, is the heavy concentration of much of Montana’s income and employment growth in its more populated and urban sub-regions. Montana doesn’t have any large cities by national standards, but its small- and medium-size cities and urban areas – seven in all, centered around Billings, Missoula, Great Falls, Helena, Bozeman, Kalispell, and Butte – are where most of the state’s economic expansion has been concentrating. While accounting for 58 percent of the state’s total population in 1990, the seven regional center counties generated three-fourths of all employment and labor earnings growth in Montana from 1990 to 2008, and they accounted for 82 percent of the state’s population growth over the last two decades.
The most recent population Census (2010) indicates that 78 percent of all Montanans live with 50 miles of its seven largest cities, up from 73 percent in 2000. By the 2020 Census, this will rise by at least another five percentage points to about 83 percent. This not only reflects how our population distribution is changing, but also how the economy is growing.
Migration patterns respond to job growth (people moving to where there are jobs) and change and also drive job growth and change (jobs being created where people are moving). Montana’s economy, like economies of most other areas in the developed world, is becoming more “footloose” in nature with more and more of its growth responding to net in-migration into the state, focused in only a few areas or pockets, mainly in the western part of the state, but more generally in and nearby the state’s more urban areas. As this happens, the economy itself is becoming more urban in character and this trend will continue.
A third major pattern underlying directions in our economy is the steady aging of the U.S. population, associated with the aging of the large “baby boomer” generation, or those born in the U.S. between 1947 and 1963. Those born in 1947 are now reaching 65 years of age. But those born in the peak years for births among boomers – 1957 and 1958 – will reach 65 in 2022 and 2023, respectively. So, we are faced with a steady and accelerating movement of more and more people currently in our workforce out of the workforce and into retirement.
Montana's overall population is aging faster than the nation's overall population, because much of the state's recent population growth was through net migration with migrants moving to the state being disproportionately made up of boomers (older adults) and migrants moving from the state being primarily composed of younger adults. This exchange in some ways served economic growth in the state during the last 15 years with older in-migrants bringing their jobs and ordinarily higher incomes to Montana while younger out-migrants, either unemployed or employed at lower earnings levels than in-migrants, left. But this exchange – net loss in younger adults – is likely to have a dampening effect on economic growth in the future, especially since most of the state’s population growth over the next fifteen years will be among persons 65 and older, leaving a paucity of younger adults to fill jobs in the economy.
During the 1990s, the age group between 44 and 53 had the largest increases in numbers. Persons at these ages are mature workers who are generally reaching or continuing to increase their peak employment earnings. During the more recent decade (2000-10), the biggest growth shifted the age group 54-to-63 years of age (aging boomers).
As this pattern continues over the current decade (2010-20), the greatest growth will shift to those between the ages of 64 and 73. The labor force will age as this occurs and begin to grow only slowly, if at all, with as many or more workers leaving the workforce as the number entering. Older workers may continue to work, some for more years than planned. Others will seek out part-time employment as they ease out of the workforce before they finally retire. But more and more will simply retire, with the pace of this greatly increasing after 2020.
The labor force or total number of people working in Montana has been generally increasing almost throughout its history. However, as this growth subsides in the years ahead, this by itself will place a growing premium on every person who enters or remains in the workforce.
This dynamic will place a particularly high premium on the quantity and quality of younger workers who must replace retiring baby boomers and those upon which a growing economy in the future will increasingly hinge. And it will place a growing premium on the large number of older workers who continue working and who must have continuing training and education to keep them relevant to a changing workplace.
Overall population growth in Montana is slowing and the population share under 65 is shrinking, falling from 87 percent of the total in 2000 to 85 percent in 2010. As aging accelerates, this will fall to about 80 percent in 2020. This combined with slowing overall population growth will flatten labor force growth in Montana and the total statewide labor force will plateau at about 540,000 workers in 2020.
The fourth dominant economic trend is the growing service sector orientation in the economies of both the state and nation. Nationally, service sectors accounted for most of job growth in the last decade and are projected to account for almost all job growth over the current decade. The same is true here in Montana. But what exactly are these services and why are they growing? There are 24 major sectors of the economy defined for purposes of compiling industry employment data and those 24 can be grouped into 11 major “segments” including the following, listed from largest to smallest in terms of total employment, in 2011:
- professional, technical, financial, and business services
- wholesale and retail trade
- construction and real estate
- arts, entertainment, and recreation services
- health care services
- federal and state government
- local government including local public schools
- manufacturing, transportation, and utilities
- other services (primarily consumer and household services)
- farm, ranch, and agricultural services
- all mining and mining services (oil, gas, coal, metals, non-metals)
The largest among all of these major segments is “professional, technical, financial, and business services,” which provided well over 100,000 full- and part-time jobs in Montana in 2010.
This segment has more jobs than any other major segment of the economy and it will continue to grow in the years ahead. This large classification includes six major industries from the NAICS industry classification system: professional and technical services, administrative and waste management services, finance and insurance, information services, education services, and management services. These include persons working as lawyers, accountants, engineers, architects, computer technicians, bankers, investment managers, insurance brokers, management specialists, and other similar professions, as well as all support workers throughout these industries. Jobs in wholesale and retail trade, together form another major segment, and are second in total jobs, followed by construction and real estate.
In the 10 years leading into the economic slowdown (1998 to 2008), Montana had a relatively high-performing economy relative to other states. And during that decade, full- and part-time jobs in professional, technical, financial, and business services increased by over 30,000, more than any other segment of the economy, and accounting for 29 percent of all employment growth in Montana.
Also during that decade, jobs in construction and real estate grew rapidly, increasing by 28,000 between 1998 and 2008, and accounting for almost 27 percent of all employment growth. However, this segment of the economy is where the recent slowdown had its greatest impact and these jobs fell substantially each year from 2007 through 2011. A major factor in gauging job growth going forward is how fast the construction and real estate sectors may recover. Job projections both nationally and in Montana suggest that construction jobs lost during the recession will not be fully recovered until sometime after 2020.
Jobs in health care services continued to expand in spite of the slowdown. And between 1998 and 2008, health care services was the third largest source of new jobs, adding over 15,000 full- and part-time jobs over that decade, or about 15 percent of all new jobs in the economy. Demand for health care services will continue to rise as the population ages. The 65-and-older population is due to expand in numbers by about 50 percent over the period from 2010 to 2020.
Employment closely connected with wholesale and retail trade, including trade in consumer services, also contributed significantly to recent job growth. Arts, entertainment, and recreation services and accommodations and food services (motels, hotels, restaurants, etc.) – together sometimes referred to as the “leisure and hospitality” industry, added over 14,000 full- and part-time jobs.
With the recent concentration of job growth in Montana in health care services, along with professional, technical, financial, and business services, it is easy to understand the growing “services sector orientation” of the Montana economy, as well as the concentration of jobs in more urban areas. This is even clearer when viewed against the backdrop of declining jobs in farm-and-ranch production as well as in manufacturing, transportation, and utilities.
Longstanding Conventional Wisdom regarding the State’s Economy
It’s important to note that three of these dominant trends – declining overall dependency on natural-resource industries, urban economic expansion, and service sector growth – are all at varying odds with much conventional wisdom and political thinking regarding the economy in Montana. This is in spite of the general improvement in economic well-being that has accompanied all of these trends. You only have to look back at the political ads and speeches of the 2012 elections to see this. Developing the state’s natural resources was touted over and over by both Republicans and Democrats alike at the key to our economic future.
However, the single most important characteristic in the overall pattern of growth and restructuring in Montana’s economy is the gradual but steady evolution of the state’s economy from one narrowly based on a host of natural-resource industries (goods production) – agriculture, mining including oil and gas extraction, and wood products, and the manufacturing extending from these – to one increasingly based on the productive potential of the state’s “human resources” (and services production). People, their number, skills, education, experience, and continuing advancement in all these areas, are the key ingredients in the state’s future economic fortunes. And this will become increasingly clear in the years ahead, placing a growing premium on the importance of workforce development and education in economic development, improvement, and advancement.
Incremental and progressive steps in education and training will be required by more and more of our workers throughout their working lives as we move into the future. Workers will need to continually transition themselves, through their experience, education and training, into the jobs of the future. The future design and structuring of education and workforce development programming must reflect this.
Within and across our various layers and divisions of education – secondary, post-secondary, continuing and lifelong – there is a need to better articulate “career pathways” that assist in both curriculum development and in guiding students and workers into promising areas of employment.
And since the job place will always be changing, much greater attention must be given to educational programming that operates outside of the “boxes” sometimes created by standard “two-year” and “four-year” education planning and thinking. Lifelong learning will become the most common thread in higher education thinking, and this operates neither within two-year or four-year windows. What’s more, future enrollment increases in advanced and extended education will be disproportionately made-up by what today are considered “non-traditional students”, or older students who are already fully or partly employed as they take classes.
In conclusion, while income and jobs growth of the last two decades has been welcome, it has largely come from many unexpected places and has been little understood in Montana, where the dominant business and political cultures have been heavily shaped by the state’s longstanding economic dependence on resource industries.
Despite declines in many natural-resource sectors as the state’s economy grew and diversified over the last two decades, most political leaders in the state still view expansion of natural resource industries as the key to future economic prosperity in Montana, and, for some, as the sole source of future economic growth.
All of the state's natural resource industries will continue to have fundamental importance to Montana's economy. However an overly narrow focus on their almost singular importance will heavily constrain consideration of both broader and more targeted measures aimed at improving the state's economy that reflect where recent growth has been concentrated and where it is most likely to occur in the future.
Larry Swanson is a Ph.D. economist and Director and Senior Fellow in Regional Economy at the O’Connor Center for the Rocky Mountain West, a regional studies and public education program at The University of Montana.
The analysis contained in this article is largely drawn from a recent study done by the Center with funding by the U.S. Department of Labor through a grant with the Montana State AFL-CIO. To access the full study, go to Montana Jobs Study.