Why North Dakota’s governor wants businesses to automate

Doug Burgum may be the only governor championing what can be a valuable strategy for states with a limited labor pool.
North Dakota Gov. Doug Burgum, center, walks through the Republican Governors Association conference, Wednesday, Nov. 16, 2022, in Orlando, Fla. (AP Photo/Phelan M. Ebenhack)

North Dakota businesses are having such a tough time finding workers that Gov. Doug Burgum (R) has proposed helping them invest in high-tech machinery instead.

Even if every North Dakota high school graduate, unemployed person and formerly incarcerated person took an open job in the state, there would still be jobs to spare, Burgum said during his December budget address. “Part of the solution to this problem must be to invest in automation,” he said then.

Labor shortages have been a top priority for many state leaders this year. But Burgum may be the only governor championing automation, which involves upgrading equipment to boost productivity and even replace some workers.

Although automation can be controversial, it’s a valuable strategy for North Dakota and other states with a limited labor pool, said David Flynn, a professor of economics and finance at the University of North Dakota.

“When faced with a statewide plateauing of your labor force, you have to look for those kinds of incentives for firms to expand and to really grow your economy,” he said.

Just 2% of North Dakota workers are unemployed and looking for work, according to the federal Bureau of Labor Statistics. The state’s unemployment rate has tracked below the national average for decades. And North Dakota’s overall labor force has remained essentially flat since 2015, Flynn said.

Employers across North Dakota are struggling to fill positions and trying to get by with fewer workers, said Andrea Pfennig, director of government affairs for the Greater North Dakota Chamber. “Everyone is trying to reduce that number of FTEs, because the people just aren’t there,” she said, referring to full-time equivalents.

Burgum proposed in his budget spending $5 million to expand the state’s automation tax credit, which helps manufacturers pay for new equipment; spending $10 million on grants to help all types of businesses automate; and spending $5 million to train workers at such companies.

North Dakota’s automation tax credit, which expired last year, allowed manufacturers to claim a credit worth 20% of the cost of new machinery and equipment purchased to improve wages, safety or productivity.

Lawmakers are now considering expanding the credit to include agricultural businesses such as egg producers and meatpacking plants. The latest version of the bill would spend $3 million per biennium on the credits, more than the $2 million spent in the past but less than the $5 million Burgum proposed.

It’s unclear if lawmakers will approve Burgum’s plan for automation grants. They are primarily discussing the workforce training grant, said David Lehman, advanced manufacturing business development manager for the North Dakota Department of Commerce.

Several other states, such as Iowa, Michigan and Minnesota, offer businesses grants to buy advanced equipment or train workers to use it. Pfennig said North Dakota’s tax credit may be unique, as few states tax manufacturing equipment.

Companies have used the tax credit to pay for a range of upgrades. Marvin, a Minnesota-based window and door manufacturer, used the credit to invest in its growing North Dakota facilities, said Cairn Reisch, the company’s community relations manager.

“A lot of that automation, yes, is to improve our products,” she said, “but the vast majority that we are installing is around safety.” The tax break helped pay for equipment that reduces employees’ exposure to fiberglass dust, for instance, she said.

When it comes to automation, “the details matter,” said Daron Acemoglu, an economics professor at the Massachusetts Institute of Technology who has studied automation.

Research shows that replacing workers with robots leads to job loss and wage declines in the local labor market, but training workers to use a broader set of new technologies leads to job gains and wage growth, he said.

Acemoglu said the federal tax code already rewards companies for investing in machinery more than it rewards investing in people. “You pay close to zero taxes if you invest in machinery,” he said, thanks to depreciation tax breaks and other incentives.

“Do we need more of that subsidy?” Acemoglu said. “Because we’re already over-subsidizing capital.”