By Siew Hoon Lim, Assistant Professor

NDSU Department of Agribusiness and Applied Economics

In March, my colleagues, Dean Bangsund and Nancy Hodur, discussed unprecedented changes in employment, housing and population in western North Dakota (“Spotlight on Economics,” March 1 and 7, 2013).

Indeed, rapid in-migration and economic development in western North Dakota bring about opportunities and challenges to local residents and businesses. Increased housing costs create substantial financial burdens for rental households. The public sector, in particular, faces personnel recruitment and retention problems.

Prices, such as wages and rents, reflect the relative scarcity of goods and services in the market. Economic theory suggests that, without market intervention, price signals enable economic agents to respond rationally to market conditions if given the available information.

In other words, the price mechanism allows the market to self-adjust and clear. The wage and rent situations in western North Dakota epitomize these underlying principles of economics.

The question remaining to be answered is: How do these price changes affect the welfare of western North Dakotans? Additionally, what are the impacts of these economic activities on the rest of the state? What are the spillover effects on nonoil-producing counties?

Relative to urban communities, the cost of living in rural areas generally is found to be lower due, in part, to lower housing costs. The consumer price index (CPI) and the ACCRA cost of living index often are used by U.S. metropolitan areas and major cities to measure price changes through time (CPI) and to compare city-to-city differences in the cost of living every quarter (ACCRA). These price studies involve conducting periodic price surveys in urban communities.

In North Dakota, the oil-impacted communities that experience high prices are in rural areas. The NDSU Extension Service started to collect grocery price data in September 2012. The price survey project, initiated by Lori Scharmer, family economics specialist, covers 37 counties and uses a basket of common household grocery items such as eggs, American cheese and coffee. The data are gathered by county NDSU Extension Service agents every month.

We studied the prices from September 2012 to May 2013.

Controlling for community size, store type and month, the cost of the basket in western North Dakota counties is, on average, 3.3 percent higher than in nonoil-impacted counties in the central and eastern part of the state.

Residents in counties with extensive oil activities incur costs that are 2.2 percent higher than those residents in nonoil-impacted counties. Also, residents in counties surrounding the epicenter of oil activities pay 4.8 percent more for the same basket of goods.

Price changes have implications on real income and income structures in the state. The market basket carries a small portion of household spending. A bigger concern facing long-time and new residents in western North Dakota continues to be housing costs and affordability.

NDSU Agriculture Communication – July 23, 2013