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Utah shows how labor force growth fuels economic growth

The Wall Street Journal. logo The Wall Street Journal. 1/18/2019 Sarah Chaney and Sharon Nunn

SALT LAKE CITY—Davis Smith, co-founder and CEO of Cotopaxi, an outdoor gear and apparel company, offers a glimpse of why Utah’s economy is booming.

Mr. Smith said he considered launching the company in Seattle or the San Francisco Bay Area before deciding nearly five years ago to base it here, partly because of the quick access to top-notch ski resorts and bike trails, but mostly because of the young, growing and well-educated population.

“There are 200,000 full-time students that live within a one-hour radius of our office here in Salt Lake,” said Mr. Smith, whose company employs 85 workers. “These are our customers. These are people that love the outdoors. . . . This is a great talent pool to be hiring from as well.”

Utah has had the fastest-growing labor force of any U.S. state since January 2010—a key ingredient for economic growth and one that provides an example for the nation as a whole as it seeks to fuel a more rapid expansion.

Economic growth is a function of gains in the number of workers and their productivity. More workers means more output, income and consumer spending. These trends, in turn, attract more employers and workers, fueling a virtuous cycle of growth.

By these measures, Utah is on a roll and the country is on a slog. The state’s labor force—the number of people ages 16 and over holding or seeking a job—has grown an average of 1.9% a year from 2010 through January 2018, more than triple the nation’s 0.6% pace, according to Labor Department data. Its workforce is more educated than the country’s, on average, making it more productive and thus appealing to many employers.

Utah’s spending on cars, clothing, education and the arts are all climbing faster than the nation’s, as are home prices.

The state’s economy has expanded an average of 2.8% a year since 2010, the year after the recession ended, outperforming the U.S. rate of 2.2%, according to the Commerce Department.

More troubling from a long-term perspective, the nation’s labor force and economy have both grown much more sluggishly over the past two decades than over the previous five.

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The U.S. workforce has increased just 0.7% a year since 2000, less than half the 1.7% pace of the previous 50 years. The slowdown reflects an aging population and a decline in the share of adults seeking or holding jobs. By comparison, the previous half-century saw surges into the workforce of veterans after World War II and of baby boomers, including women, in the 1970s and ’80s. U.S. economic growth followed suit, slowing to an annual rate of just 2% since 2000, well below the 3.7% pace of the prior five decades.

Many factors affect growth, including business regulation, access to financing and the quality of educational institutions. Employers say Utah is attractive on these fronts.

But analysts agree that for the U.S. economy to expand faster, it is going to need more people working.

“Without people, you can’t have jobs, and without jobs, you can’t have an economy,” said Mark Zandi, chief economist at Moody’s Analytics.

Utah shows how the process works.

One key element is population growth. Utah has clocked the fastest-growing population of any U.S. state from 2010 through June 2018. The state is reaping the benefits of perennially high birthrates, in part reflecting the influence of the Church of Jesus Christ of Latter-day Saints, which is based in Salt Lake City and encourages large families. This gives the state a large supply of young workers with strong local ties. Utah logged the highest birthrate among states again last year.

Utah also has strong rates of migration from other states and countries. In 2017, almost half its population growth came from people moving in, a stark turnaround from a net outflow right after the recession, according to the Kem C. Gardner Policy Institute.

Nate Harris, age 39, moved to Eagle Mountain, Utah, in 2014 from a slow-growing area of southwest Michigan for Mr. Harris’s job at a sales and marketing office in Lehi, Utah. He, his wife and their six children feel at home in a community where big families are the norm, he said.

“I love [Michigan], and I miss it, but from an economics standpoint we had to get out of there,” Mr. Harris said.

Nathaniel Hancock, age 39, a husband and father of six children, said he took a pay cut to move the family to Pleasant Grove, Utah, from the San Francisco Bay Area in 2016 to accept a sales position at Podium, a Utah-based software company. The lower cost of living, however, has enabled them to live in a 5,700-square-foot home, three times bigger than the one they left in California, but with one-third the mortgage payment and more money to spend on things like movie tickets, ski trips and Utah Jazz basketball games.

“Utah is just better designed for families with multiple kids,” Mr. Hancock said.

All those added people boost consumer spending. They need a place to sleep, for example, fueling demand at Purple Innovation, Inc., a company that manufactures and sells mattresses. It opened a factory about two years ago the size of 10 football fields in Grantsville, Utah. Payrolls at the plant surged to nearly 400 in 2018, said Alex McArthur, chief marketing officer. That is up from 40 when it opened in 2016.

They also need to eat. Michael Roberts, a Salt Lake City-based personal chef, cackles while cracking eggs open and emptying them into a bowl, rattling off an A-list of clients including professional football and basketball players. He had been turning away so many customers that he was looking into hiring an apprentice as of late summer, he said, noting, “people have a lot of cash.”

Population movement between states doesn’t increase the national workforce or birthrate, which is why many economists favor allowing more immigration from abroad if policy makers want to juice U.S. growth.

“Utah is a lesson to the rest of the country that demographics are quite important,” said Harvard University professor Dale Jorgenson, who specializes in estimating an economy’s growth potential. “With [the nation’s] aging population, we’re not going to have the same kind of growth. We’re going to have to depend on migrants.”

Population growth alone, however, doesn’t guarantee growth unless the would-be workers have job skills. Another big draw for employers is Utah’s relatively well-educated labor pool, which has helped nurture a blossoming tech sector, much of it based in the “Silicon Slopes” area comprising Salt Lake City, Provo and Park City.

Mr. Smith, of Cotopaxi, said that for his company, it was important to have a “strong amount of tech talent, which we felt Utah had.” As a bonus, he added, he lives within a half-hour of at least four ski resorts. “It just felt like we had everything we needed to build this brand right here in Utah.”

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