Blog PostJuly 15, 2014

North Dakota: What Happens when a Market is Free to Run Wild

Minimum wage advocates should heed the lessons of the oil fields

How does this job prospect sound?

  • Total Yearly Income: $56,400

  • Benefits Include:

    • – One week paid vacation every 6 months after your first six months.

    • – During your week of paid vacation you also receive a $1000 bonus.

    • -We will match up to $100/month in an employee savings account.

    • – If you like we also offer a Personal Financial Assistant to pay bills, do taxes and help manage your money.

In addition, there is no requirement for a college degree or any special certification – just a clean driving record, no criminal history and a reliable vehicle.

This is a real job posting on Craigslist for Jimmy’s Pizza of Stanley, North Dakota which says that it “is building a staff and needs delivery drivers. The base salary is $36,000 per year, with $20,400 more earned through delivery and tips.

And, Jimmy’s Pizza says it will be opening more locations soon, with “huge potential for advancement.”

A Williston, ND Walmart recently advertised several job openings that start at $17.20/hour. This rate is nearly two and a half times the local minimum wage.

These two businesses are simply paying what the labor force is worth, given the economic boom resonating from the state’s oil industry. Thanks to the shale oil extraction and a welcoming business environment, the state has increased its oil output tenfold over the past eight years, capped so far by records of more than one million barrels of oil per day for two straight months. Some 12 percent of US oil comes from North Dakota.

As a result, North Dakota boasts the nation’s lowest unemployment rate (2.6 percent in May.) The oil jobs are lucrative enough, commanding average salaries of about $100,000, “often with little-to-no experience or need for a college degree.”

But as University of Michigan-Flint economist Mark J. Perry points out, ancillary businesses like retail and restaurants need to pay much more than minimum wage just to lure the non-oil workers:

“Walmart pays wages that reflect the economic conditions in a local market based on the supply and demand realities of the local labor market. In other words, Walmart can’t really set wages independent of market forces and it’s really at the mercy of the market in every local community. If Walmart offered the minimum wage of $7.25 per hour in the (oil rich) Bakken area, it wouldn’t be able to staff its stores.”

It’s the same story across the business board:

“At fast-food chains, the going rate is about $15 an hour. Hair salons, pharmacies, banks, hospitals, gas stations, bars and clothing stores are also desperately looking for employees and paying a pretty penny to keep them from defecting for the oil fields.”

Granted, these high paying jobs often mean higher prices – at restaurants, retailers and others who need to maintain their pennies on the dollar profit margins just to stay in business. As CNBC reported in June, franchise operators have “pared down and priced up” to accommodate the higher wages:

“At Hardee’s, (franchise owner Jon) Munger uses labor-saving devices, like self-ordering kiosks and automated training systems to cut down on costs. He also eliminated a hostess program and a roast beef slicer position. Customers feel the pinch too—prices are about 20 to 30 percent higher in Williston than his average restaurant.”

Farther west, the city of Seattle recently approved a minimum wage to $15 an hour to “improve the plight of low income workers.

The trouble is, Seattle does not have the same market influences as North Dakota. The greater numbers of people in Seattle alone mean businesses there do not have to chase down their workforces with higher pay for lower-skilled jobs.

In Seattle, higher priced menu or store items, staff reductions or transition toward automation are likely to happen not because of naturally occurring market supply and demand, but because government officials think they can replicate the market successes like those of North Dakota by forcing employers to pay their employees more.

As the minimum wage battles spread from Seattle to other parts of the country, our policymakers need to heed the lessons of North Dakota, that is, a market allowed to operate freely does a much better job at determining our paychecks than government.