Labor supply can be defined as the number of persons who would potentially apply for work if a job becomes available. There are basically two ways to estimate labor supply. One way to estimate labor supply is a labor survey of a geographical area. Many current labor surveys use the “labor shed” concept, which includes commuting from other communities in the estimate. There are pros and cons to conducting and using the results of a labor survey. On the positive side, a labor survey can provide detailed information about the labor supply, including the wages and types of jobs of interest. Sometimes a prospective business may demand a labor survey before they locate to an area, and labor surveys are easier to understand conceptually. On the negative side, a statistically-valid survey will probably be quite expensive. Depending upon changes in the economy, the labor survey results could be valid for only one month or up to a year. Second, the labor surveys re-conducted by different vendors or groups using different methodologies and the results are not easily compared to other surveys and cannot be summed to provide a statewide perspective to labor supply.

Another method that can be used to estimate labor supply is a “handbook” approach. The LMIC currently uses this approach to develop labor supply estimates for counties and Metropolitan Statistical Areas. The “handbook” approach attempts to measure labor supply for only nonfarm wage and salaried jobs. This methodology limits labor supply to workers 19 years and older. One of the advantages of the “handbook” approach is that it is a cost-effective way of making labor supply estimates for areas that exhaust the state’s geography.

Potential workers can be categorized into two groups: those with jobs and those without jobs. Estimates for the number of workers with jobs who may be willing to change jobs can be made based on historical hiring trends. Those types of workers are sometimes loosely termed the “underemployed” (working part-time but want full-time work, working in jobs not in line with their education, want to find a better paying job, want a job with benefits, etc.).

Since the goal is to determine the labor supply for nonfarm wage and salaried jobs, the starting point is the nonfarm worker numbers. Each month, the LMIC estimates nonfarm workers by county. Next, the “handbook” approach determines the relative share of nonfarm workers who may be willing to change jobs. This is where historical hiring patterns come into play. New hire rates for wage and salaried workers covered by unemployment insurance are tabulated by the LMIC. (Covered workers account for about 92% of all wage and salaried workers; so, covered workers are basically a universe of all workers of interest.) New hire rates indicate the percentage of all covered workers who show up on an employer’s quarterly payroll as a new hire. In other words, they have not been employed by that business in the previous four quarters. There is both a seasonal and cyclical pattern to new hires. So, data from the previous four years are used to calculate a new hire rate for each quarter.

The final step in this part of the procedure is to adjust for multiple job holders. Since nonfarm wage and salaried worker estimates are counts of workers at jobs, a single individual can be counted more than once. After being adjusted for multiple jobs, the ‘labor supply underemployed’ represents a count of individuals who are working and willing to change jobs. Here is an example of the calculation of the ‘labor supply underemployed’ for Beadle County.

People without jobs make up a large share of the labor supply. The “handbook” approach to determine the ‘labor supply not employed’ includes a procedure to estimate the number of people who are not working and would be available for new jobs. The starting point for this part of the methodology is to gather information on the ‘not employed.’ (The LMIC makes estimates of the ‘not employed’ for other uses, including a federal grant program.)  The ‘not employed’ includes the 19+ population not-in-the-labor-force who want jobs plus 19+ unemployed residents. The beginning point in the calculation of the ‘not employed’ is the civilian non-institutionalized population 19 years and older by county. The non-institutionalized population with an employment-related disability is excluded. Then the 19+ unemployed residents are added to the counts. The net result is an estimate of the ‘not employed.’ That measure needs to be reduced by the number who would not actively seek jobs. Information gleaned from community labor surveys are used to adjust the ‘not employed’ number and come up with an estimate of the percentage of ‘not employed’ who would actively seek jobs. Here is an example of the calculation of the ‘not employed’ who would actively seek jobs for Beadle County.

In the final step of estimating labor supply, the ‘labor supply underemployed’ and the ‘labor supply not employed’ are added together. Again, here is an example of the final calculation of labor supply for Beadle County.

If you have questions or need more information, contact Bernie Moran of the Labor Market Information Center at (605) 626-2314 or e-mail her at bernie.moran@state.sd.us.