Whether you are hiring for executives or entry-level service workers, you are likely facing a more challenging environment than in recent years. It might have to do with NH’s low unemployment rate.
Economists traditionally consider a 5 or 6 percent unemployment rate indicative of full employment. If that is the case, what does NH’s February unemployment rate of 2.7 percent mean? Put simply, it’s an extremely tight labor market—NH's lowest since 2001 and tied for lowest in the nation. Even looking to the broadest measures of unemployment by including those working part time not by choice, and those who gave up looking (neither of which are included in the 2.7 percent), we’re probably still close to full employment by traditional measures.
A tight labor market is a double-edged sword—good for many employees, but difficult for employers. But a labor shortage could stymie NH’s economic growth.
A Double Whammy
The story of our skintight labor market is more than just low unemployment. Since the state’s employment figures hit bottom in early 2010, we’ve added 42,000 jobs, while the labor force expanded by only 3,900. Why? Young people are staying in school longer and boomers are retiring. Moreover, the state’s population grew by only 1 percent since 2010.
There’s a catch-22 here. Unemployment is so low that without more workers, employers will have trouble adding jobs. But without more jobs, we won’t be able to attract more workers. So, what can we do? There are two policy aspects to consider: Either attract more workers already here into the market or draw more workers to NH.
Growing Our Resident Labor Force
The first option, getting more Granite Staters into the labor force, won’t be easy. Our participation rate (the proportion of people aged 16 and over working or looking for work) in December was 69 percent, versus 63 percent nationally. We have the 7th highest participation rate in the country.
One thing NH could do is raise its minimum wage, now set at the national rate of $7.25 per hour, making it tied with states like Mississippi and Alabama for the lowest in the nation. Maine ($7.50), Vermont ($9.60) and Massachusetts ($10) have higher minimums, enticing our workers to border hop and discouraging their workers from coming here. Moreover, our bordering states have adopted built-in increases that will, for example, raise Vermont’s minimum to $11.54 over the next several years.
It is true very few NH workers make minimum wage. Yet, a higher minimum wage might draw people into the labor force and help those on the bottom to more easily make ends meet. It might also boost wages for jobs somewhat above the median wage. An often-stated concern is that a higher minimum wage will cause jobs cuts, a thought underlying the recent rejection of a minimum wage hike by the NH House. But given our situation, it seems a risk worth taking, and wages will probably be bid-up by market forces if current trends continue.
Encourage In-Migration
The second way to overcome the catch- 22 is to encourage in-migration. But, we have several log jams. First, our housing is expensive. Zillow.com calculates a median NH home cost of $225,000 versus a national figure of $183,000. Even at these costs, the NH Housing Finance Authority estimates a backlog of less than nine months (approaching a shortage) in the for-sale category. For rentals, the vacancy rate is under 3 percent, versus an industry standard of 5 percent rate. More people can’t move here if affordable housing isn’t available.
To create in new housing, we need more accommodating local zoning environments. Most NH communities have a rigid framework adopted years ago when rising school enrollment was seen as a burden. New Hampshire is now growing slowly, and school enrollment is mostly falling, threatening the viability of small community schools.
We also need more affordable workforce housing. The median rent of a two-bedroom apartment in NH is $1,200 without utilities, versus a national average of about $850. New Hampshire has a workforce housing statute requiring communities to provide realistic opportunities to develop workforce housing, but many are often ineffective.
Another log jam thwarting in-migration is that many of our new jobs are low paying jobs in food service and lodging that don’t attract new workers. We are beginning to see job quality improvements, but 106,000 NH residents commute to jobs outside of the state, versus 65,000 that commute in. Better quality jobs in NH could help retain more of those out-commuters.
There are no easy solutions. To be sure, our job growth is a positive aspect of our economy. We just need to be careful to set the stage for continued growth with a balanced labor market going forward.
Russ Thibeault is president of Applied Economic Research, an economic and real estate consulting firm in Laconia. He can be reached at 603-524-1484.