Bloomberg News

Worker Shortage Dogs Trail King as S.D. Jobs Go Begging

April 09, 2012

The painter who taught Trail King Industries President Inc. Bruce Yakley to wield a spray gun, the welder whose daughter is state golf champion and the metal worker who’s careful to wear a face shield are all laboring around the clock.

That’s not enough to keep pace with demand at the truck trailer maker’s plant in rural Mitchell, South Dakota, 75 miles (121 kilometers) west of the state’s largest city, Sioux Falls. Employees plan to assemble 1,700 units this year, up from 1,350 last year.

As the rest of the country struggles to create jobs for the long-term unemployed, South Dakota businesses are looking for 10,000 accountants, information technicians, engineers and welders to help fill millions in lost orders. The state’s thriving agriculture industry also needs employees.

“It keeps me up at night,” Yakley said during a tour of the 230,000-square-foot plant, as rock singer Stevie Nicks wailed in the background and the smell of burning metal permeated the air. “It’s once in a lifetime, once in a career, to really be able to grow a company as fast as I think we could, and we’re being throttled by the employment situation here regionally.”

One factor making it harder to attract workers are wages that rank among the lowest in the country, said Bill Adamson, an associate professor of economics at South Dakota State University (28535MF:US).

South Dakota was second to last among states, behind Mississippi, for its average weekly wage in the third quarter of 2011, paying $684. That was just over half of the figure for the highest, Connecticut, at $1,118 a week, according to the U.S. Bureau of Labor Statistics.

Low Wages

Greater competition for workers isn’t enough to lift South Dakota’s wages because of factors that have kept them down for decades, including low union membership and a small population and modest cost of living, said Reynold F. Nesiba, an associate professor of economics at Augustana College in Sioux Falls.

“There is something to be said for work ethic and culture,” said Nesiba. “People in South Dakota don’t do much protesting or organizing. Instead, they get second and third jobs to pay their bills.”

At 4.3 percent in February, South Dakota’s unemployment rate was about half the national average and was the nation’s third lowest, behind North Dakota and Nebraska, according to the Bureau of Labor Statistics.

Choosing Options

South Dakota ranked ninth from the bottom in economic health from the third to fourth quarter of 2011 -- one of only 13 states to show a decline during that period, according to the Bloomberg Economic Evaluation of States. Yet, the state posted the second-best gain in employment among all states during that time, the index found.

The labor shortage is forcing some companies to choose between options that bode ill for South Dakota’s economy: automating assembly lines, eliminating jobs for good, or moving to a state where more workers are available.

South Dakota firms join manufacturing, computer and telecommunications companies from Washington to Mississippi searching for highly-skilled employees.

The biggest recession since the 1930s spawned a mismatch between workers’ skills and companies’ needs when industries such as construction sharply curtailed operations while others, like manufacturing, started to improve, said Michael Brown, an economist at Wells Fargo Securities.

‘Skills Disconnect’

“The skills among the labor force today are not up to the degree or the level of competency that firms are demanding,” Brown said. “There is literally a skills disconnect between skills in demand and skills in the labor force, between supply and demand.”

In South Dakota, the Department of Labor and Regulation is juggling 10,000 jobs with fewer than 100 people to fill them, said Governor Dennis Daugaard, 58, in his state-of-the-state address in January.

Daugaard is employing unusual tactics to find workers, including approving a $5 million contract with Milwaukee-based recruiter ManpowerGroup. (MAN:US) The company started a nationwide job hunt for 1,000 employees this month.

In an interview in Pierre, the state capital, the governor said the labor shortage is slowing recovery from the recession by preventing companies from expanding and increasing sales -- moves that would boost tax revenue.

“There’s no question about it,” said the first-term Republican. “We just don’t have enough young people and enough population to keep pace with economic growth.”

Move Home

Just 182,984 people moved to South Dakota between 1993 and 2010 -- about the population of Knoxville, Tennessee, according to the Tax Foundation. South Dakota is home to 11 people per square mile, compared to 87 for the U.S., Census Bureau statistics show.

Daugaard is betting a plan to entice South Dakota natives to move home, and initiatives to train high school and college students for careers in fields with jobs, will change the outward migration of skilled workers and attract new ones.

For many South Dakota firms, the labor shortage comes at a critical time as they attempt to ramp up to manufacture goods to fuel North Dakota’s oil boom and the Midwest’s growing agriculture industry.

“The cattle market is at an all-time high,” said Scott Rysdon, chief executive of Sioux Falls-based Sioux Steel Co. “The demand for equipment like gates and chutes and corrals is at a premium all over the nation and we’re losing orders.”

Rysdon’s 90-year-old company, which manufactures metal enclosures for ranchers, is out of options after an intensive six-month search for 20 welders turned up few candidates.

‘Carnivals With Balloons’

“We’ve been through every program under the sun, from reference dollars where you refer a friend and we’ll give you so much after 90 days, to advertising trade shows, fairs and carnivals with balloons,” Rysdon said. “You name it, we’ve done it.”

While South Dakota keeps no statistics on lost revenue from manpower shortages, business owners say the cost is substantial. Rysdon said he lost $2 million in orders last year because his staff couldn’t make products fast enough.

Yakley’s Trail King is also considering growing elsewhere. The company needs 200 more welders to cut a seven-month backlog -- the longest in its 38-year history -- prompting some customers to take their business elsewhere. As the average age of trailers reaches nine years -- an all-time high -- Yakley said he’s struggling to keep welders on the payroll.

Not Moving

Relocating isn’t feasible for farmers and ranchers. Hilltop Dairy owner Olga Reuvekamp wants to add 1,500 cows to her farm 70 miles north of Sioux Falls. She’ll need to increase her 30- person workforce to care for the current herd of 2,000.

Her milkers, herdsmen and animal scientists hail from around the world, forcing Reuvekamp to spend hours processing work visas and forms required by the federal government.

“We’ve tried the long-term unemployable and this is way beyond what they’ll ever be able to do,” she said. “Migrant workers aren’t afraid to get dirty and they have a sense it’s not a 9-to-5 job.”

Reuvekamp is about to get more competition for employees. A $100 million Bel Brands cheese factory, owned by a unit of Paris-based Fromageries Bel SA (FBEL), expected to employ 400 workers is scheduled to open in Brookings, down the road from her dairy, in 2014.

“Several cheese plants in that area aren’t currently able to operate at their full capacity because there are not enough cows to supply them,” said Blair Dunn, director of policy at the South Dakota Department of Agriculture. “We can take the cows and the people as soon as they’ll come.”

Changing Impression

Local officials say that to attract new workers they must undo an impression of the state as an inhospitable place that young people flee as soon as they’re able. In the past, teens left because there weren’t enough jobs, said Mitchell Area Chamber of Commerce Executive Director Bryan Hisel.

Hisel, a rural planner for 30 years, says his third time emerging from a recession provides a rare moment for South Dakota industries to grow and keep residents at home.

“We either fix this problem for our industries and companies, or we’re not going to have a next chance,” he said. “Once the impression is out that there aren’t enough workers in an area, we hit a wall with CEOs and that impression may last through the next expansion.”

To contact the reporter on this story: Jennifer Oldham in Denver at joldham1@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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