Skill Levels of the Labor Force:  An Analysis of the US & SD

This article was published in the November 2006 South Dakota Labor Bulletin.

Communities and economic development groups have been working together to revive South Dakota and increase the standard of living in our small rural economies. The Governor’s 2010 initiative was enacted to create new jobs, generate income, and identify South Dakota as a leader in research and technology. The development of high-wage, high-skilled jobs is a crucial part of achieving these goals.  

Key changes initiated in the economy by globalization over the past few decades have had a profound effect on the skill levels required by employers. Traditional labor-intensive, physical jobs have been replaced with knowledge-based jobs that require more education than their predecessors. The United States is a leader in exporting goods that use high-skilled labor while importing goods created by low-skilled workers from other countries. Does South Dakota act in accordance with the US trend?  

Occupational data including employment numbers by occupation and industry were collected through a survey of South Dakota employers, which was administered by the Occupational Employment Statistics (OES) program. The survey includes employees covered by Unemployment Insurance but does not include self-employed workers. Survey data were then updated to represent a composite panel of occupations and workers by reference period. Occupations and employment numbers were matched to educational attainment data provided by the US Bureau of Labor Statistics. Educational attainment data identifies the training level recommended to enter a specific job or occupation and were developed through extensive surveys and interviews of both government and private organizations. (Click here for more information.) Skill levels based on the 11 categories of education and training data were derived and include: lower skilled labor, moderately skilled labor and highly skilled labor. A summary of the training categories that comprise each of the three skill levels is found below.  

Classification of lower skilled, moderately skilled, and highly skilled are arbitrarily based on BLS and other analysts’ taxonomy of the following:  bachelor’s degree or higher indicates a required college education; postsecondary vocational award and associate degree are categorized as “some college,” and work experience in a related occupation and training levels below postsecondary vocational award are combined in a remaining “high school or less” category. These groupings provide the foundation to classify workers into lower skilled, moderately skilled and highly skilled categories. Although these skill categories reflect the degree of education preferred for entry into an occupation, they may under-classify some jobs. Postmasters, for example, have no set training course but usually have several years of experience in a related field before achieving the skills required to fulfill their job. With no training courses or degree necessary, postmasters are classified in the lower skilled group for this analysis, even though with the years of experience and on-the-job training required this would be considered a higher skilled job in the postal service.  

The table below exhibits total employment for South Dakota and the United States in each skill category and also shows the percentage of total employed in each skill class. Data compared are from 2003-2005. A slight shift of labor from lower skilled jobs to highly skilled jobs can be seen in South Dakota from 2003-2004. The percentage employed in lower skilled jobs decreased from 76 percent to 75 percent while the percentage employed in skilled jobs increased from14 percent to 15 percent. During that time period the United States saw an opposite shift of jobs, a slight movement from highly skilled jobs to lower skilled jobs. Discernable changes were not evident from 2004-2005 for either South Dakota or the United States. South Dakota had a significantly lower percentage of workers employed in highly skilled occupations than the United States in 2003; however, that difference narrowed and became insignificant in subsequent years. 

Arguably, export oriented industries bring wealth and jobs into a state. Analysis and comparison of the skill levels employed in major export industries of South Dakota and the United States gives valuable insight into the types of jobs supported by trade. The top 10 export industries (excluding agriculture and unclassified industries) in South Dakota and the United States for 2005 are listed below. 

Agricultural crop production (NAICS 111) was not included in the top export industries due to lack of covered worker data and corresponding OES wage data. The top export industry in South Dakota is food and kindred products manufacturing. The large base of agricultural products in the state gives South Dakota an advantage in meat, dairy and other value-added processing. Computer and electronic products manufacturing is the top export industry of the United States. A recognized leader in technology-driven manufacturing, the United States uses innovative sources to develop and test new products. 

Analyses of skill levels will be based on the top common export industries of South Dakota and the United States which include: food and kindred products manufacturing, computer and electronic products manufacturing, machinery manufacturing, transportation equipment manufacturing, miscellaneous manufactured commodities, fabricated metal products manufacturing, chemical manufacturing, and plastics and rubber products manufacturing. Comparisons of relative skill levels will be done within each industry for the years 2003-2005.  

South Dakota’s major export industry, food and kindred products manufacturing, has skill levels comparable to the United States for all years. However, labor comparisons of the other major export sectors show considerable differences in skill levels. The United States consistently employs a larger percentage of high skilled labor in each of the industries than South Dakota. Discrepancies larger than five percent are noted in the high skilled sectors of computer and electronics manufacturing, machinery manufacturing, transportation equipment manufacturing and chemical manufacturing. The larger concentration of highly skilled labor in US export sectors highlight a number of differences between the US and South Dakota manufacturing processes. South Dakota employs people primarily for the production process, while the United States has a larger base of research and development, professional and technical workers employed in these industries.  

Exported goods have a high potential for bringing income and jobs into a community, yet they are still a small fraction of South Dakota’s gross state product. A comprehensive view of the NAICS super sectors reveals whether the service and goods producing sectors that are not necessarily exported employ the same skill levels as the United States. The table below displays the labor allocations for 2005 in the NAICS super sectors excluding Agriculture, forestry, fishing and hunting and Mining. These industries were not included due to the lack of data in the agriculture industry and the sparse number employed in the mining sector.