Accounting for Growth: North Dakota’s increasingly educated workforce

Over the last couple of days we have looked at the growth — or otherwise — of human capital in North Dakota in the last few years in an attempt to understand why the state’s performance on per capita GDP growth has been so erratic. We looked at employment and the average number of hours each worker works annually. This gives you a measure of the “raw labor” in an economy. Now, we will look at the quality of that labor, the growth of what we can call “knowledge capital,” which comes from education and experience, starting with education.

Performance

On Tuesday, we saw that the per worker stock of human capital arising from education in North Dakota was stagnant in the 2008-2014 period, which was the worst performance across the 50 states. Between 2014 and 2023, however, it rose at an average annual rate of 0.3%, the best performance in the United States.

We measure the per worker stock of human capital arising from education by dividing the workforce into categories based on educational attainment, awarding each category a score which increases with the level of attainment, multiplying that by the number of workers in each category, then summing the totals for all categories. We then divide this total stock by the number of workers for the per worker number. It follows that if the composition of the workforce by educational attainment changes, so will the stock of human capital arising from education per worker. This is an average: There are many workers without college degrees with more economically useful skills than many holders of PhDs. Nevertheless, on average, economists have found that each year of schooling tends to raise a worker’s wage by a certain percentage.

This is what we see in Figure 1, which shows the percentage point change in the share of the workforce with at least a bachelor’s degree over two periods. Between 2008 and 2014, North Dakota was the only state where the share of the workforce with at least a bachelor’s degree declined, by 0.3 percentage points. This drove the state’s poor record on per worker human capital growth from education in that period. In contrast, between 2014 and 2023, the share of North Dakota’s workforce with at least a bachelor’s degree rose by 8.5 percentage points, the fastest rate in the country and the driver of that top ranking in 2014-2023.

Figure 1: Percentage Point Change in Share of Workforce With at Least a Bachelor’s Degree

So, a bright spot for North Dakota’s economy in the period of per capita GDP decline has been its impressive increase in more highly educated workers.

Prospects

North Dakota has done well in recent years in adding educated people to its workforce and, as Figure 2 shows, there is ample scope for this to continue with the state ranking 17th out of 50 states on the level of human capital arising from experience which each worker possesses. Even after its impressive performance in 2014-2023, only 35.0% of North Dakota’s workers have a bachelor’s degree or above, a share below 32 other states.

Figure 2: Human Capital Arising from Education Per Worker, 2023

This is an area the state can look to for faster growth.

This article is based on our report “Accounting for Growth in North Dakota: Performance and Prospects.”