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Ranked #1: Labor Costs

The respondents to the 2006 Corporate Survey conducted by Area Development identified the cost of labor as the number-one factor for making site selection decisions. Here is some insight into the importance of labor costs.

Feb/Mar 07
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Competing for Labor
As the overall labor market tightens, having access to lower-cost labor is based on a company's ability to compete for labor. With the loss of the social contract between employer and employee, i.e., of "employment for life" that permeated the culture of previous generations, the employee loyalty factor has been greatly diminished. Essentially, employees will stay in a given position at a particular company only as long as there is not a better opportunity elsewhere. In order to address this phenomenon, companies need to be aware of how employees "rate" their employers and how well they are competitively positioned in the local labor market.

There are five common factors - the five "C's" - that employees and prospective job candidates consider when evaluating a particular job situation:

 1. Compensation and benefits: These include base compensation, pay for performance, bonuses, incentives and commissions, as well as the benefits package. Compensation and benefits packages have become more comprehensive and flexible to attract a labor force with diverse needs. In tight labor markets, job candidates will rank benefits high, particularly features like 401(k) plan options, access to stock options, and elimination of waiting periods for insurance coverage and other benefits.
2. Career opportunity: Job experiences that allow the employee to demonstrate and expand competency of skills are regarded highly. Titles are less important to younger workers, but working on "hot projects" and new technology is much more valued.
3. Company image and culture: This includes brand recognition and image, company reputation, type of work environment, approachability and style of leadership, dress code, and other operating norms. Image and culture perceptions are formed by the website presentation, office and building design and maintenance, access to healthcare/fitness and daycare facilities, and flexibility of work hours.
4. Commutation: The common ideal commute time is up to 20 minutes in small and mid-sized areas and 45 minutes or more in major metro areas. When a commute exceeds 30 minutes, employees frequently will seek options for employment to reduce commute times. Employers entering a community may seek locations that intercept longer commute patterns for existing employees as a potential recruiting strategy.
5. Community attributes: Consideration of community quality of life is critical when hiring and relocating talent from outside the area for functions such as headquarters, R&D, software development, and highly technical production. Primary considerations are the availability and cost of housing, the overall cost of living, quality of local school systems, cultural and recreational options, parks and meeting places, and healthcare facilities. Evaluation of an area is highly subjective and will vary by the life stage, life style, and special family needs of the prospective employee.

How Communities Can Help Companies Address Labor Costs
The best approach to sustaining existing companies is to know their needs and their position within the product life cycle for locally produced products and/or services. To enhance a company's productivity, the community can partner with a local or state-level university to provide free or low-cost process-technology improvements - particularly for smaller or mid-size companies. In addition, the community can survey labor needs of local companies and assure that local students and the labor force are aware of pending and future skill needs and that local colleges and training facilities offer courses related to the skill requirements. Communities that become more active partners with their local companies have a better chance of meeting needs early rather than trying to offer incentives too late in the company's decision to relocate from the area.

As labor becomes a much higher proportion of a company's operating budget, the need to seek locations that offer high productivity at a competitive wage rate becomes even more critical. Communities that understand their wage positioning, become familiar with company needs vs. life cycle stages, and promote their level of productivity and technology support will ultimately be the winners.

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