Is South Dakota’s Labor Market Back to “Normal”?
Between February 2020 and March 2020, South Dakota lost 44 thousand employees, making up 10% of the total nonfarm workforce. This extreme labor shock sent ripples through the economy, and many wondered whether we would ever return to “normal”. While a lot has changed since 2020, what has happened to the state of South Dakota’s workforce? More importantly, is our workforce back to “normal”?
This article analyzes the workforce data of South Dakota and its neighboring states to answer these crucial questions. The article focuses on four key parameters, namely total employment, labor force participation, unemployment, and sectoral employment, to provide an overall view of the labor markets in South Dakota and its neighboring states.
South Dakota’s Employment
South Dakota’s labor market has seen steady growth over the last decade. Between January 2014 and December 2023, South Dakota’s employment grew by an average year-over-year rate of 1.07%. Comparatively, employment in the United States grew at an average rate of 1.42% over the same period. Figure 1 shows the year-over-year employment change for the United States and South Dakota over the period mentioned.
As shown in Figure 1, during the COVID-19 Recession (indicated by the gray bar), South Dakota’s employment decreased at a less severe rate than the United States (-9.3% for South Dakota compared to -13.4% for the United States). Additionally, the peak employment change during the recovery for both South Dakota and the United States was similar (10% for South Dakota compared to 10.9% for the United States). In summary, although there is a 35-basis point difference between the average year-over-year employment growth of South Dakota and the United States, South Dakota had a less volatile journey over the same period.
Figure 2 goes further by comparing the year-over-year growth rate of South Dakota to neighboring states. During the COVID-19 Recession, South Dakota had the second-lowest year-over-year employment decrease of -9.27%. Nebraska had the lowest with a -8.93 % decrease, and Minnesota had the most significant decrease with a -13.51 % fall in employment. Additionally, South Dakota had the second-greatest employment recovery, with a 9.97% increase. Minnesota had the most significant recovery with a 10.19% increase, and Nebraska had the lowest with a 7.39% increase.
Figure 3 zooms into the last year of data for South Dakota and neighboring states, ending in December 2023. South Dakota has the highest year-over-year growth rate at 3.02%, while Iowa has the lowest at 0.64%. While South Dakota’s labor market is currently seeing the highest employment growth rate compared to neighboring states, how does this compare to our growth rate pre-COVID-19?
To answer this, Figure 4 adds to Figure 1 by adding the average year-over-year employment growth between January 2014 and January 2020 for South Dakota and the United States. As shown in Figure 4, the United States is approaching its average pre-COVID-19 employment growth rate of 1.7%, while South Dakota remains well above its average of 0.9%.
South Dakota’s Labor Force Participation
For over a decade, South Dakota and neighboring states’ labor force participation rate, defined by the Bureau of Labor Statistics as, “the percentage of the population [over the age of 16] that is either working or actively looking for work,” has been trending downwards. Figure 5 shows this downward trend, which, for South Dakota, started in 2004 when labor force participation peaked at 73.2%. South Dakota’s labor force participation rate is 67.6% as of December 2023. Currently, South Dakota has the lowest labor force participation of all neighboring states, with North Dakota having the highest rate at 69.1%.
However, when examining the trend of diminishing labor force participation in South Dakota, it is not apparent that the COVID-19 Recession substantially affected participation rates. Figure 6 models this observation by providing the labor force participation rate for South Dakota between January 2013 and December 2023. The dashed blue lines represent the linear trend of the data.
Unemployment Rate
South Dakota has been able to maintain a robust labor market despite a decrease in its labor force participation rate. The state’s unemployment rate has remained low ever since the COVID-19 Recession. Even before the recession, South Dakota was already doing well in terms of unemployment, with an unemployment rate of just 2.5% in February 2020. Currently, as of December 2023, South Dakota’s unemployment rate sits at an impressive 2%.
To better illustrate this decrease in the unemployment rate, Figure 7 compares South Dakota’s unemployment rate with the neighboring states. South Dakota has consistently had one of the lowest unemployment rates in the region. As of December 2023, South Dakota has the second-lowest unemployment rate in the region, second only to North Dakota, which has an unemployment rate of just 1.9%. On the other end of the spectrum is Iowa, which has the highest unemployment rate in the region at 3.2%.
Sectoral Employment
Moving forward with the analysis of South Dakota’s labor market, it becomes important to shift the focus from overall employment to the various sectors that constitute the state’s workforce. By examining the specific industries and occupations within each sector, one can gain a better understanding of the strengths and weaknesses of South Dakota’s labor market.
The data showed a significant decrease in employment in the leisure and hospitality sector during the COVID-19 Recession. Specifically, within one month, the South Dakota leisure and hospitality sector dropped from 46,100 employees to 27,700 employees, a drop of 39.9%. It wasn’t until July of 2021 that the leisure and hospitality sector exceeded the pre-COVID-19 level when it hit 46,400 employees. While the leisure and hospitality industries were hit hard during this period, other sectors maintained well. For example, the financial activities, manufacturing, and professional and business services sectors only decreased by 600 (2%), 1,600 (3.6%), and 1,700 (5.1%).
On the other hand, the information sector was relatively hard hit during the COVID-19 Recession. This is because the information sector makes up such a small percentage of South Dakota’s employment. In February 2020, before the Recession, the information sector employed 5,500 workers or 1.24% of South Dakota’s total nonfarm employment. During the Recession, the information sector lost 400 employees, a decrease of 9.1%, making it the second largest percentage decrease for South Dakota. Although 400 employees out of a workforce of over 400,000 might seem insignificant, a nearly 10% decrease in any sector would provide challenges. As of November 2023, the information sector’s total employment is 5,200—a shortage of 300 employees to its pre-COVID-19 levels.
Conclusion
In conclusion, South Dakota’s labor market has displayed resilience and recovery in the face of the challenges posed by the COVID-19 pandemic. Despite a significant drop in employment during the initial months of the pandemic, the state experienced a less severe decline compared to the national average. Furthermore, South Dakota exhibited a robust recovery, surpassing the pre-pandemic employment levels in various sectors, notably leisure and hospitality. The state’s consistently low unemployment rate and steady employment growth, both before and during the pandemic, underscore its economic stability. However, even with this resilience, the information sector has had a more difficult time returning to “normal” as it has yet to reach its pre-COVID-19 workforce.