COVID-19’s underlying impacts still evident in Bozeman labor market
The economic impacts of COVID-19 are still tangible for many Bozeman businesses. Even though the pandemic has faded, the market still faces a big problem moving forward: labor shortages.
Last Tuesday, Jason Faberman, senior economist for the Federal Reserve Bank of Chicago, gave a presentation regarding the post COVID-19 labor market, which shed light on the possible causes of the recent staffing shortages nationwide.
The virtual presentation on Feb. 21 was slightly longer than an hour and had over one hundred listeners attend. During the presentation, Faberman dove into the reasoning behind the current turmoil faced in the labor market — a problem Bozeman is all too familiar with.
Faberman shared his research on how resignations, quiet quitting and expanded government benefits have played a role in the extreme downturn of the labor supply market.
The presentation started by revisiting what has happened in the labor market since the start of the pandemic. “During the pandemic, we saw a sharp decline in employment and economic activity of over thirty percent and then a rapid recovery,” Faberman said. “Despite that, even as the economy recovered, overall labor force participation, relative to the total population, has been relatively weak.”
Faberman said a wide variety of factors have been cited as causing reductions in the labor supply: increased childcare demand, the extensions of unemployment insurance benefits and fear of just catching the virus are all commonly cited causes. Other less apparent factors cited include good shortages, global supply chain issues and extra strong labor demand caused by record-high job vacancy rates, he said.
But not all of those factors accurately explain the impact on the labor market, some being more evident than others. One factor that was cited by Faberman is increased childcare demand.
Jesse DiTommaso, the economic development specialist for the city of Bozeman, also cited childcare as a potential reason for the labor shortage in Bozeman. DiTommaso says that Bozeman is not meeting the need for childcare, which is making families more likely to stay home and provide childcare themselves rather than go to work and have to find that service elsewhere.
In the presentation, Faberman also added a few underlooked labor suppressors, like an increase in nominal wages, which are wages unadjusted for inflation, and a decline in real wages.
Issac Swensen, an associate professor of economics at MSU, introduced Faberman during the talk. When questioned about the relationship between the decline in real wages and the labor supply in Bozeman, Swensen said, “Although it may be confusing to see high nominal wages and employers struggling to find workers, a deeper look at underlying labor market measures suggests a decline in willingness or desire to work and high labor demand that is a direct consequence of relatively low real wage.”
Essentially, the labor supply is limited, but the demand for labor is high, which is pushing nominal wages up, Swensen said.
The labor supply shortage is a problem that has been exacerbated in Bozeman with the extreme costs of living. Local small business owners are feeling the pressure.
Presentation attendee Zac Renner, an MSU business student and owner of Bridger Detail, a business that specializes in car detailing, said the labor shortage in Bozeman has made it extremely difficult to expand his operations. “No one wants to work anymore,” Renner said when asked about the issue.
This idea of decreased willingness to work aligns with what Faberman and Swensen had to say about the causes of the labor shortage.
Renner opened his business in late 2020 with originally only himself and his business partner. Since then, Bridger Detail has expanded to have three employees. He said if he had the opportunity to bring more people into the business he would, but he can’t find any employees.
This is similar to other businesses locally, and DiTommaso reinforced this idea. “Bozeman has seen employers struggle to find workers, which has constrained businesses' ability to grow or maintain a pre-pandemic level of service,” she said.
DiTommaso also commented on how unemployment rates in the city may be impacting the labor pool. “In Bozeman, our unemployment rate is really low — it hovers right around 1.1%-1.3% when healthy unemployment is 4%. The reason the higher unemployment rate is healthy is that if a business is looking to grow there is a pool of people they can pull from. When the unemployment rate is really low, that means that business can’t grow,” she said. “Bozeman’s [rate] being really low it is hard for businesses to grow.”
Swensen said the information presented “emphasized the importance of understanding both the labor supply and labor demand in order to understand labor markets, both nationally and here in Bozeman.”
The last section of the presentation included a Q&A in which Faberman answered questions from the audience.
This workshop was sponsored by MSU Initiative for Regulation and Applied Economic Analysis (IRAEA). The IRAEA is a research initiative that aims to engage undergraduate and graduate students with faculty in academic research that will further the understanding of economic regulation and policy’s impact on societal well-being.
“One of the primary goals of the IRAEA is to provide research-based information to citizens, policymakers and researchers, so we are very passionate about the importance of objective, credible research,” Swensen said. “We strive to create opportunities like this workshop to share research with the general public.”
To learn more about the IRAEA, go to:
https://tinyurl.com/IRAEA-Info
To watch a recording of the virtual presentation, visit:
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