Workers’ comp rates trending downward, at least through 2010

During the sluggish economy, Minnesota employers are seeking ways to reduce costs, and many are likely thankful to see workers’ compensation costs trending lower, according to data in a recent report by the Minnesota Department of Labor & Industry.

Employers are required to have workers’ compensation insurance or be self-insured against workplace accidents. The report shows that firms have been paying steadily lower costs per $100 of payroll in recent years. This mirrors a similar pattern seen nationwide, according to an annual report by the National Academy of Social Insurance (see Chart 1).

One of the reasons for lower average costs is likely the result of steadily declining rates in workplace claims, which have dropped below five for every 100 full-time equivalent workers (see Chart 2). This has helped offset a rise in the average cost of individual claims over the same period, especially for medical benefits, which increased by 15 percent (to $5,550 per claim) from 2006 to 2009 (the most recent figures available). Average indemnity benefits—direct compensation to workers for lost wages—rose 3 percent per claim over this period, to $3,530, but that figure is down $170 from 2008. (All benefits are also adjusted for wage growth over this period.)

Claims are down for a variety of reasons, some of them related to the current economic slowdown, while others stem from long-term shifts in the economy. For example, employers are reportedly spending more time and money on workplace training in an effort to avoid workplace accidents and injury. The economy has also shifted away from manual-labor jobs in factories and elsewhere that are more likely to induce injuries and claims. The state report noted that the economic slowdown can also affect the claim rate.

In the same way the broader economy has moved away from manual-labor jobs, the recession dealt a harsh blow to construction jobs, which have a high accident rate. Work speed is also a factor in workplace injuries, and a sluggish economy can slow production rates. Employment losses during a recession affect less-experienced workers, who tend to be more accident prone. Workers might also file fewer claims during tough economic times for fear of job security.

But the workers’ comp coin has two sides. As the state report said, laid-off workers might also have a greater incentive to make a claim out of economic hardship “because lay-off is no longer a risk.”

Rural Minnesota counties still seeing brain gain (yes, with a “g”)

Much is made of the fact that young people are leaving rural communities for jobs and education opportunities after high school. Much less is made of the fact that older households are continuing to move back to many of those same communities, according to new research by Benjamin Winchester, a research fellow at the Extension Center for Community Vitality at the University of Minnesota.

Winchester tracked five-year age cohorts from age 14 to age 65 from 2000 to 2010. He found that nonmetropolitan counties gained population in the 30-49 age range—a continuation of the trend seen in the 1990s, though the pace of growth had slowed somewhat, possibly in part to a slowdown of migration from the recession. Nonetheless, this migration pattern can be seen clearly from a snapshot of three age cohorts moving (generally speaking) from a job-search and career-building mentality to marriage and family-planning mindset (see maps below; due to technical constraints, maps with better clarity can be seen in the report itself).

County-level population change, 2000 to 2010, by age group (25-29, 30-34, 35-39)

Source: "Continuing the Trend: The Brain Gain of the Newcomers," University of Minnesota Extension Center for Community Vitality

The research did find that rural counties continued to lose young adults to metropolitan counties, mostly to the Twin Cities. In fact, Winchester found that migration preferences of all cohorts from 2000 to 2010 “are remarkably similar” to those found the previous decade.

One new finding was that micropolitan counties—those counties with regional populations of 10,000 to 49,000—appear to take on cohort migration traits similar to metropolitan counties. This was particularly the case in the southwestern portion of the state, where Winchester said “rural urbanity” appears to be attracting more 30-to-39-year-olds to places like Willmar and Marshall. He also pointed out that these micropolitan gains might ironically “exacerbate the narrative of rural decline,” because as these places grow, a few might reach metropolitan status, thus possibly shifting the migration ledger without any underlying change to the places people are moving to.

This research is an update of earlier research on rural brain gain, which Winchester talked about in a July 2011 interview with the fedgazette.

Cashing in on the farm might mean holding onto it

Robust agricultural prices have led to strong farm balance sheets. That lure of high profits has generated anecdotes of some eye-popping sales of farmland and whispers of a farmland boom for a couple of years running.

But that’s only the wind blowing in your ears—there is no widespread evidence of a speculative boom, says a recent report by Steven Taff and Minnesota Land Economics, an online data warehouse maintained by the Department of Applied Economics at the University of Minnesota.

The price of land has risen considerably since 2000, even after adjusting for inflation, including a strong rise from 2007 to 2010. While farm income wasn’t particularly strong during the first half of that decade, farmers saw some of their best years during and after the recession.

But the lack of unbridled speculative bidding can be seen in the fact that the number of sales has dropped by 50 percent since 2007, and the number of acres sold has fallen even more—evidence that farmers are perfectly happy to take profits from fields, rather than from land sales (see chart). That was particularly the case last year, when the number sales, total acres and median prices all declined compared with 2010.

The MLE database goes back to 1990 and includes some 54,000 farmland sales covering 6 million acres. The data come from state Department of Revenue compilations of property transactions, which are reported annually by county auditors. The distribution of those sales, broken out by year, offers an interesting timeline of farmland sales and values in the state over this period (see video at bottom; note that land values in the video are not adjusted for inflation).

Taff points out that ag land near the Twin Cities, other large cities and high-amenity locations has “always been affected by factors other than agricultural,” including recreation, housing development and retirement. “This results in some parcels selling for far more than we might expect if we simply focused on their farm income potential.”

 

 

 

Home foreclosures: Getting better, but not good

Last year was the first year since the recession that the fever of home foreclosures finally broke, declining slightly across the nation and in most district states, according to data from CoreLogic, a financial, property and consumer data firm.

Home foreclosures started inching up in most places by 2006 and ramped up significantly every year through 2010. By then, foreclosures had at least tripled in every district state; in Minnesota and Wisconsin, foreclosures grew 11-fold or more. (See Chart 1; CoreLogic data do not cover South Dakota.)

Then last year foreclosures finally dipped in a more positive direction, except in Montana, where foreclosures rose another 13 percent. North Dakota has by far the lowest foreclosure rate in the district, even on a household basis, and it also saw the largest drop in foreclosures last year, at 38 percent.

One notable data caveat: A February report sponsored by a consortium of Minnesota housing organizations, and published by HousingLink, found that the total number of foreclosures in the state in recent years was roughly 50 percent higher than CoreLogic’s figures, though the two sources follow a very similar trend line overall since 2005 (see Chart 2). The consortium’s report used county-level sheriff’s auction data, while CoreLogic has a proprietary data system, and sources there could not identify the reason for different annual totals.

Sue Speakman-Gomez, head of HousingLink, said she could not speak to CoreLogic’s methodology. “But I can say for certain there is no double-counting in our numbers. The counties know exactly what properties have gone through sheriff’s sale, and we have been working with them for several years. … We are confident that our numbers represent a 100 percent accurate count” of homes lost to foreclosure via sheriff’s sales.

Whatever the annual figures, many experts are predicting that foreclosures will remain elevated—and possibly even rise—this year. Banks repossessed fewer properties in 2011 compared with 2010, due in large part to the investigations surrounding so-called robo signings and bank foreclosure procedures, which delayed foreclosure processing for many homeowners behind on their mortgage payments, according to RealtyTrac, an online foreclosure clearinghouse. The firm has reported that the number of default notices nationwide rose during the second half of last year and remain elevated (figures in district states were not available, however).

Open for business: New business filings up in Minnesota and Wisconsin

After seeing a pause in new business registrations last year, both Wisconsin and especially Minnesota have seen strong growth during the first quarter of this year compared with the same period a year ago.

In the Gopher State, total registrations in the first three months of this year grew by 23 percent, about twice that seen in the Badger State (see chart). Growth in both states was largely driven by new registrations of domestic and foreign limited liability companies (LLCs). Should it hold, this would be a return to the growth of LLCs seen through much of the last decade in both states. And while registrations for new corporations were flat in Wisconsin—largely continuing a long-term trend—the same trend reversed itself in Minnesota, where new corporation registrations grew by 18 percent in the first quarter and were 8 percent above 2010 levels as well.

 

In all, Minnesota recorded some 18,000 new registrations in the first quarter. Compared with its easterly neighbor, Minnesota tracks many additional forms of business registrations, including assumed names, which are not incorporations of new businesses but registration of a name, possibly for use by an unincorporated sole proprietor. There were almost 4,500 such registrations in the first quarter of this year, about 6 percent more than in 2011.

For more background on trends in young establishments, entrepreneurship and self-employment, see the cover articles in the July 2011 and January 2012 fedgazette.

The state(s) of entrepreneurship

Everybody loves a ranking, except when you’re on the unflattering end. That’s particularly the case when it comes to business and entrepreneurial types of rankings, because economic activity and jobs are so desperately desired.

So it is that some states are clapping or wringing their hands over a recently released annual index of entrepreneurial activity by the Kauffman Foundation, the largest foundation in the world dedicated to entrepreneurial research. The index captures new business owners in their first month of significant business activity and then tabulates a score based on a state’s adult population (per 100,000 people). Kauffman uses consecutive-month reports from the Current Population Survey from the U.S. Census Bureau. It flags people who report working for themselves for at least 15 hours per week during the past month (and not doing so the month before that).

District states didn’t fare particularly well in the rankings. Montana was the only state to exceed the national average, and South Dakota came within a whisker (see chart). But North Dakota, Minnesota and Wisconsin lagged well behind.

Such rankings hold some interesting insights into entrepreneurial activity. But they are not particularly good barometers of a state economy or the economic well-being of its residents. For example, among the top six in entrepreneurial activity, half of the states were in the bottom half of per capita income, compared with only two of the six states with the lowest index ranking. Average income gains in 2011 also favored low-ranking states over high-ranking ones. On average, those in the bottom of the index also had lower unemployment than high-entrepreneurial states (see chart). That shouldn’t necessarily be a surprise: States with high unemployment tend to have more self-employed people by necessity as they hustle for any income they can find.

On the other hand, the performance of district states implies an old adage: in all things, moderation. District states rank toward the middle of the index pack, and even toward the lower third for Minnesota and Wisconsin. But their unemployment rates are all considerably below the national average, and per capita income was higher than the national average for three of the five states (Wisconsin and Montana are ranked 25th and 35th, respectively, among states). More to the point in annual rankings, every district state ranked in the top half in per capita income gains in 2011.

One final tidbit: North Dakota saw its 2011 index score drop from a year earlier and is considerably below the national average, yet it has by far the best unemployment rate in the country and had the highest gains in per capita income last year (6.7 percent). That doesn’t mean North Dakota’s entrepreneurial activity is necessarily in a good spot, but it does mean that one can’t read too much into any economic index.

Some Ninth District regions seeing strong population growth

Nothing screams economic activity like population growth because, as the saying goes, people go where the action is. And if that’s the case, North Dakota is getting a little hoarse because it’s getting more crowded.

The U.S. Census Bureau recently published 2011 population estimates for states and their largest population centers. Among the Ninth District’s 15 metropolitan areas, Sioux Falls, S.D., and Bismarck, N.D., led the population pack with a 1.4 percent increase last year. In fact, every district metro saw at least slight growth, save for Grand Forks, which dropped one-half a percentage point (see Table 1).

The Census is also gathering and publishing more data on smaller, so-called micropolitan regions, of which there are 41 scattered across the Ninth District. There was wide variation in population growth among these regions (see Table 2), and total growth for micro regions was slower than for district metros (0.6 percent versus 0.9 percent, respectively). Roughly one-quarter (10) of micro regions saw population declines. But six micro regions saw stronger growth than the top metro areas. Half of them are in western North Dakota, where Minot and Dickinson grew by 3 percent or more, and Williston grew an astounding 8 percent last year.

Migration and demographics play important roles in population change, as people move into and out of communities, while the existing population experiences both births and deaths. Unfortunately, new population statistics don’t tell us how many of each occurred in various communities. Communities in Ninth District states harbor fairly similar demographics in terms of age and fertility rates that would make local population change from births and deaths reasonably consistent and predictable in a given year.

Migration is likely the biggest factor in population performance, particularly among outliers. In western North Dakota, it’s clear people are migrating to the oil patch for jobs—a topic covered in depth in the April fedgazette online later this month.

 

Robert Frost redux: Levees make good neighbors, especially in Velva

The city of Minot and surrounding region is still recovering and rebuilding from last summer’s devastating floods, when a raging Souris River damaged more than 4,700 residential, commercial, farm and public properties. A recent report by the U.S. Army Corps of Engineers put total structural damage at nearly $700 million.

But the floods would have exacted an even larger toll without emergency levees that were hurried into place when it became known that the region was in eminent danger of historic flooding. Though there was not enough time to build levees high enough to avoid catastrophic flooding in many places, the Corps estimates that an additional 1,500 structures would have been damaged, to the tune of more than $200 million, had no levees been erected (see table at bottom).

The tiny community of Velva, population 1,100, was the biggest beneficiary of emergency levees. A total of 29 homes and 5 businesses were damaged by the flood, totaling about $1 million. But emergency levees protected almost 500 structures, preventing $88 million in damage.

Minot and Burlington were the hardest hit, and the least saved, in a proportional sense. Minot suffered structural damages estimated at $577 million, while levees saved further damage to about 800 structures and $105 million in additional costs. Neighboring Burlington was barely spared; it suffered $32 million in property damage, and levees prevented just $94,000 in additional damage.

Total flood recovery costs also exceed these damage figures. Minot Mayor Curt Zimbelman recently told a U.S. Senate Budget Committee field hearing that the city’s unmet needs for flood recovery total almost $1 billion, about half of which is for a flood control project that would protect the city from a similar event in the future.

A rising oil tide lifts all wages

Average wages have risen dramatically in western North Dakota, where rapid oil and gas development has transformed the economic landscape. Between 2004 and 2011, the average annual wage in counties with substantial oil activity increased over 80 percent in constant dollars, to about $56,000—a surge in compensation that dwarfed increases in the state and nation.

Some of the increase is due to a rising proportion of well-paid workers engaged in activities related to oil and gas—exploration and drilling, transporting oilfield supplies and equipment, building new facilities for oil companies and oilfield service firms. Jobs in mining (a statistical category dominated by oil workers in the region), trucking and construction have posted strong gains during the oil boom (see chart). In 2004, oil-related jobs accounted for just 12 percent of total employment in five core oil-producing counties; in 2011, that share was 41 percent. On average, workers in oil-related industries earned twice the pay of workers in other industries last year.

But most of the increase in oil patch wages stems from labor demand chasing supply, not just in oil-related industries, but in virtually every sector of the regional economy. In communities such as Williston, Watford City and Dickinson, N.D., few workers are available to fill thousands of job openings. Many employers—including those in industries that depend to a lesser extent on oil industry spending—have responded by offering higher pay. For example, in core oil counties, inflation-adjusted wages for hotel and food service workers increased 63 percent from 2004 to 2011. Over the same period, real manufacturing wages increased 21 percent.

An analysis of the relative impact of the two trends—a shift in employment to oil-related activity and across-the-board wage increases—shows that broad wage hikes account for close to three quarters of the average wage increase during the oil boom, while the shift in employment to oil-related activity accounts for about one quarter of the average wage increase. So the oil rush has lifted all workers in the region, not just workers tied to oil and gas extraction.

For much more on labor trends in the oil patch, see the forthcoming April issue of the fedgazette.

Bankruptcies: A step down from the financial ledge

As more evidence of a recovering economy, and of improving household and business balance sheets, bankruptcy trends appear to have finally pivoted to safer territory.

Consumers and businesses in district states saw a fairly significant decline in the number of bankruptcy filings last year (see Chart 1). Every state saw a drop; bankruptcies in North Dakota dropped by 23 percent, and in Montana 17 percent, over the previous year.

 

Disaggregating bankruptcy totals by chapter—named after the laws that govern types of bankruptcy filings—shows some interesting differences. Bankruptcies are filed under chapters 7, 11, 12 and 13, each of which has different requirements regarding exempt and nonexempt debts and assets. The vast majority, however, are filed under chapters 7 and 13. (Last year, for example, there were a total of 217 and 62 bankruptcies in district states under chapters 11 and 12, respectively—a rounding error compared to chapters 7 and 13 filings.)

Chapter 7 bankruptcies are complete liquidations, after which debtors are unbound from debts and essentially allowed to start over. Roughly 95 percent of Chapter 7 filings are by individuals, according to the Administrative Office of the U.S. Courts. Chapter 7 bankruptcies exploded after the recession (see Chart 2), and their share of all bankruptcies in the district rose from 76 percent to 84 percent from 2006 to 2010. But last year the trend pivoted, with districtwide Chapter 7 filings dropping by 14 percent. Every district state saw a drop of at least 6 percent, and most had much larger drops (see Chart 3).

 

Chapter 13 bankruptcies are designed for debtors that have regular income streams and the potential to repay debt if it is restructured to more favorable terms. Virtually all Chapter 13 bankruptcies are also filed by individuals—of the more than 9,000 Chapter 13 filings last year, 98 percent were nonbusinesses. But unlike its cousin, Chapter 13 filings actually rose very slightly (0.3 percent) last year—based entirely on the fact that Wisconsin saw a small increase and Minnesota only a very small decrease, underperforming the national average by a considerable margin (see Chart 3). By comparison, the Dakotas and Montana saw Chapter 13 filings that roughly equaled or beat the national average.

For historical context, district states have seen both better and worse bankruptcy levels in just the past decade. Bankruptcies trended higher during the 2001 recession, and in 2003 they reached levels similar to today. But bankruptcies rose even more strongly in 2004 and 2005 because of a change in bankruptcy laws that essentially pulled forward a huge number of filings. In 2005, districtwide filings approached 75,000 (compared with a recent peak of about 60,000 in 2010), but then fell to about 25,000 in 2006.

For more historical data and discussion of bankruptcy trends in the Ninth District, see the July 2009 fedgazette.