The tight labor market has made availability of skilled labor a paramount concern for companies looking to expand or open a new facility, but data alone will not help a company identify the community that will best meet its workforce needs.
By John Rees
Today, companies face one of the most competitive markets for labor in at least a decade. Twenty states have unemployment rates of 4 percent or less. Private employers have more than five million unfilled job openings, an increase of more than 600,000 positions during the past three years. Even companies without expansion plans are finding it increasingly difficult to secure workers. In January, a record three million Americans quit private-sector jobs, significantly offsetting the 5.3 million workers U.S. companies hired.
The tight labor market has forced companies to make labor availability a paramount consideration when expanding existing operations and locating new facilities. While the availability of skilled labor has always played a role in the site selection process, it has often taken a backseat to other concerns such as site availability and business costs. This was even truer during the recession. Securing sufficient labor often proved relatively easy when millions of Americans were out of work. With the labor market now reaching full employment, how can companies scouting expansion and relocation locations find an abundant and skilled workforce? What questions should they ask prospective communities? What data will help them make better-informed decisions? The following 10 factors should be part of any site selection discussion in which success depends on access to labor.
1. There is no national labor market — all labor is local.
Regardless of what’s happening nationally, it is critical to understand the labor dynamics of prospective communities as well as the specific workforce needs of your company. While the U.S. unemployment rate hovers near 5 percent, the figure is much lower in many regions of country (it is barely 2 percent in Ames, Iowa, and just 2.5 percent in Boulder, Colorado, for example). Alternatively, there remain metro areas where unemployment rates linger in the double digits. Even in communities characterized by high levels of unemployment, available labor may not align with your company’s operations. The unemployment rate for management and professional occupations, for example, is just a fifth of that for construction and extraction workers.
2. There are few truly local labor markets.
Workers living within a community are rarely the sole source of your potential workforce. Labor markets do not follow strict jurisdictional boundaries. A substantial proportion of Americans cross county and metropolitan borders to reach their places of employment. Looking beyond the number of workers living within a community and examining the broader labor shed can have profound implications in determining a prospective site’s true talent pool. For example, every day Atlanta imports hundreds of thousands of workers from throughout Georgia. Workers are often willing to travel significant distances to secure greater employment opportunities. Nearly 10 percent of U.S. workers spend at least 60 minutes each way commuting to work.
3. Talent doesn’t always equal employment.
When examining a community, it is crucial to appreciate the difference between jobs and people. Take Berkeley County, a community in the Charleston, South Carolina, region. It is home to fewer than 50,000 jobs but nearly 90,000 workers, a dynamic completely absent in traditional sources of employment data. Fortunately, third-party vendors such as Emsi now regularly publish detailed information on the occupations of residents. The difference can be striking. Berkeley County, for example, is home to just 3,600 manufacturing occupations. More than 6,000 manufacturing workers, however, live in the community — a fact that hasn’t gone unnoticed by large employers like Volvo, which is currently building its first U.S. manufacturing plant in Berkeley County.
4. Look beyond unemployment rates.
Without context, unemployment rates can be meaningless. It is like learning that the temperature is 50 degrees Fahrenheit without knowing the location or the season. While an unemployment rate can help quickly identify the number of unemployed people actively looking for work, it is of limited use in understanding how many people can be hired in a community.
5. Identify the talent magnets.
When exploring locations for a new or expanded facility, it is important to examine the community’s track record of attracting new workers. In high-growth regions, a continuous inflow of new workers into the region has facilitated substantial employment growth despite low unemployment rates. For example, both the Austin, Texas, and Lawrence, Kansas, metros had unemployment rates of 3.2 percent at the end of 2016. The labor similarities end there. During the past decade, the Lawrence region’s workforce rose by 2,200 jobs, an increase of less than 4 percent. During this same period, Austin’s workforce swelled by 270,000 jobs, an increase of 30 percent.
Furthermore, U.S. workers are far less willing to move than in previous decades. Since the 1980s, the rate of domestic interstate migration has fallen by half. The result has largely created a winner-take-all environment in which a few metropolitan areas are absorbing a disproportionate share of skilled workers.
6. Find the Goldilocks locales — those with wages that are “just right.”
The immediate rewards of locales with the lowest operational costs can disguise long-term retention challenges. As labor is often a company’s largest operational expense, locations with the lowest costs often feature the lowest wages. Unless they are geographically isolated from other , employers in many low-wage communities may find it difficult to retain talent as existing workers are continuously lured by the higher earning potential that can found elsewhere. This threat is especially acute today when U.S. workers are quitting in record numbers. Over the long term, some of the most stable sources of labor are communities that have lower wages relative to the U.S. but higher wages compared to neighboring communities. This not only provides companies with a competitive operating environment, it also helps them attract a higher proportion of outside workers residing in the broader labor shed.
7. Today’s wages aren’t necessarily tomorrow’s wages.
Just as companies must appreciate the context surrounding unemployment rates, so too must they understand prevailing wage levels. After years of relative stagnation, U.S. wages are rising once again. Perhaps even more importantly, they are increasing across a wide variety of positions across the wage and skill spectrum. While inflationary wages have been traditionally associated with specialized work such as software and information technology, last year even Wal-Mart announced an across the board wage increase for more than one million workers. In Texas, prior to the decline in oil prices, average wages for truckers were increasing at a faster rate than for software developers. Wages are the canary in the labor force coal mine, and rapid increases may signal an increasingly restricted labor market.
8. Today’s workers aren’t necessarily tomorrow’s workers.
An aging population — combined with shifts in federal immigration policy — makes a thorough examination of a community’s demographic characteristics increasingly important in the site selection process. Communities that might appear at first glance to have an abundance of workers could be
at risk of suffering a workforce shortage in the years to come if they have a large foreign-born workforce or aging population.
During the past decade, the number of workers age 55 and older has increased at 20 times the rate of overall employment growth. Today, more than 20 percent of U.S. workers are age 55 and older. While many Americans continue to work longer than ever, the baby-boom generation will eventually exit the labor force. The impacts on individual locations will vary widely. In some Florida communities, more than half of all workers are older than 45. To cite a previous example, although employers in Ames, Iowa, might struggle finding workers in an era of 2 percent unemployment, they are also far less likely to be impacted by a greying workforce — half of all workers in the community are between the ages of 16 and 27.
9. Today’s students are tomorrow’s workers.
Local post-secondary institutions not only provide an insurance policy against an aging workforce, they can also play an important role in delivering an immediate workforce aligned to the specific needs of a company. Programs such as Georgia’s QuickStart have long offered employers free workforce training tailored to their labor needs. In recent years, other states have adopted even more ambitious higher education agendas.
Several states now offer free community college to high school students. In April, New York became the first state to make tuition free at public four-year colleges. A requirement that students remain in the state for four years after graduation to qualify for loan forgiveness will likely be a boon for New York employers. The requirement will not only increase the pool of available workers within the state, but these individuals will not be burdened with high levels of debt that might force them to forgo high demand, but lower-paying occupations due to financial constraints.
10. Not everything that counts can be counted.
While data can provide critical insights in the availability of labor, data alone will not help a company identify the community that will best meet its workforce needs. Quantitative information must be complemented with insights that can only be gleaned from discussions with local officials, local businesses, and economic development professionals.
The presence of a post-secondary institution might be promising, but does the community have a track record of leveraging educational programming to support the needs of area employers? The state’s workforce website might feature glowing testimonials from high-profile companies, but what is the experience of smaller employers? What is the economic development vision of local leaders? Are they looking for a quick win or are they creating a long-term partnership that benefits all parties? The answers to these questions cannot be readily found on a spreadsheet.
Communities Are Responding to the Challenge
Fortunately, communities are responding to emerging workforce challenges. Since 2010, Avalanche Consulting has conducted an annual survey of economic development professionals. More than 90 percent of the 145 economic development organizations responding to our February 2017 survey reported that delivering a skilled workforce has become more important in the site selection process. In response, survey participants are improving coordination with local colleges and universities, advocating for more career-oriented K-12 programs, and expanding access to workforce training. Ultimately, such initiatives will make it easier for companies to identify and invest in communities with the workforce necessary to thrive in today’s fiercely competitive environment.