Oversaturated Markets Pose Unique Challenges

  • May 21
Oversaturated Markets Pose Unique Challenges

We don’t talk about state-to-state migration enough and the catalysts that provoke it. The paradigm states must adhere to is remarkably complex but therein lies the beauty. Every state is its own business when you think about it. Their primary objective is to attract people to move there. Because the more people you have, the more business development you can expect. Thus, the more growth your economy can enjoy. The ongoing and never-ending competition between states is fascinating. Just because your state has beautiful mountains or ocean views doesn’t mean people are going to flock there. And even if they do, oversaturated markets and undersaturated ones can both be problematic.

Most people would love to live in a beautiful place. But our survival is paramount, which means beautiful views don’t translate to food on the table. Let’s explore some of the caveats to grooming a successful state-based economy.

Oversaturated Markets

Why would California experience a population decrease when it has one of the most diverse landscapes of any state? Could the problem be that it’s simply too appealing? When a state has much to offer and attracts large influxes of people, it must also provide adequate opportunity. Otherwise, it will lose its hold on those people as the markets become oversaturated. The Law of Supply and Demand plays a big role explaining mass migrations and the tension between business and government.

When a large amount of people want to live in an area, you must have a large amount of jobs to support them. However, when work is in short supply, the job market favors employers. Unfortunately, this allows them to offer the bare minimum to employees. So, local government must not only manage the unemployed but also make sure those employed earn fair wages. This results in higher taxes to fund social welfare programs and increases to the minimum wage.

Both policies directly and negatively affect the bottom line on a business’s income statement. A simple cost benefit analysis might then motivate such a company to re-domicile in another state with more favorable treatment. When the business leaves, so do the employees and associated tax revenue. The local government will then need to find alternative means to recover the lost tax revenue. Sometimes, this results in the implementation of a wealth tax in the form of property taxes. High property taxes discourage in-migration and encourage out-migration.

This pattern is where the unfortunate distinction between business and government comes into play. Under capitalism, if a startup grows faster than it’s capable of managing, it’s more motivated to cut spending however possible to regain stability. You rarely hear of a government cutting spending proactively to extend longevity and thwart economic collapses in oversaturated markets.

Under-Saturated Markets

Dry, cracked ground with several small plants, the opposite of an oversaturated climate

The alternative is when a discovery is made, or policy implemented, that turns a ghost town into a metropolis. This results in the demand for workers to skyrocket across the entire spectrum of sectors. However, due to the low-level population, the limited supply of workers can’t meet the demand. Employers then must lure people to the area to fill the void. And the best way to entice people to uproot their lives and move to what may be a desolate location is offering large sums of money.

My favorite example of this progression is what happened in North Dakota after the discovery of the oil-rich Bakken Shale. The little town of Watford City, located right in the heart of the activity, saw its population more than triple from 1,814 in 2010 to 6,720 in 2015. The 2015 number doesn’t even include transient workers that were there on temporary assignments. This large influx of people caused fast food chains, notorious for paying the bare minimum, to begin managing payroll at $15 per hour starting out. And that was unheard of at the time.

This happened because people can’t live without food, and one restaurant can only feed a finite amount of people. So, more restaurants had to be built. With more restaurants comes more demand for workers, but here was the kicker. Someone without a high school diploma could rake in over $100,000 a year working in the oil patch. Fast food restaurants were in an atypical situation, competing for low-skilled laborers. Problem was, you could only pay someone to flip burgers so much before the $1 menu turns into the $2 menu.

The Cycle of Mass Migration

The fascinating cycle of mass migration can be found in all levels of economies. We’ve only discussed state-to-state migration here since this type has the least barriers to entry. The same patterns can be found in country-to-country migration as evident in the European Union. There’s even continent-to-continent migration as seen in the mass exodus of Africa as the resources and water continue to dwindle. This cycle will continue until the end of time because, like in business, people flock to opportunities until the benefits are diluted back to the overarching status quo. Then they move on to the next one. That’s why it’s important to keep an eye on the dangers of oversaturated and undersaturated markets and plan accordingly.

In fact, if you want to know how to strategically operate with an eye toward dangers, check out our Business Strategy and Management courses.

Article written by Vaughn Pourchot

Last updated March 10, 2023