Accounting for Growth: North Dakota’s youthful workforce

This week, we have been looking 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. Then we moved onto “knowledge capital,” the qualititative skills which augment that quantity of labor, starting yesterday with those arising from education.

Performance

On Tuesday, we saw that the per worker stock of human capital arising from experience in North Dakota was stagnant in the 2008-2014 period. Even so, this was the second best performance in the United States. Between 2014 and 2023, it rose at an average annual rate of 0.2%, the best performance in the United States.

We measure per worker human capital arising from experience by dividing the workforce into categories based on age and awarding each category a score. These scores increase with age up to a point, then decline as workers become “set in their ways” and experience becomes a negative. In our calculations, human capital per worker increases up to the age of 44 and declines thereafter. We then multiply each category’s score by the number of workers in each category, sum the totals for all categories, and divide this total stock by the number of workers for the per worker number. It follows that if the composition of the workforce by age changes, so will the stock of human capital arising from education per worker.

That is what we see in Figure 1, which shows the percentage point change in the share of the workforce aged under 45 in the two periods. Between 2008 and 2014, the share of the workforce in North Dakota aged under 45 rose by 2.7 percentage points, the fastest rate in the United States. It maintained this growth between 2014 and 2023, with the share of its workforce under 45 growing by 3.6 percentage points. However, as other states improved their growth rates, North Dakota’s ranking fell to seventh out of 50 states. Within this, though, the share of the state’s workforce aged 35 to 44 — the peak years for human capital from experience — increased by 6.9 percentage points, comfortably the highest rate out of the 50 states. This drove North Dakota’s top human capital per worker growth ranking in 2014-2023.

Figure 1: Percentage Point Change in Share of the Workforce Under 45

Over our entire period of analysis, North Dakota has done a better job than any other state of attracting young workers and those in the peak years of their productivity.

Prospects

North Dakota’s success in adding younger and more productive people to its workforce in recent years has given it the fourth highest level of per worker skills arising from experience, as Figure 2 shows.  

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

North Dakota has the second largest share of its workforce under 45 and this relatively youthful workforce will acquire skills with age until that age where, we assume, skills become a negative. Other states are already past this point to a greater degree, so here, again, is an area where the state can expect to drive faster per capita GDP growth.

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