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Inward Investment Guides

Finding the Real Cost of Labor

The executives responding to Area Development's 2007 Corporate Survey ranked cost of labor second in importance among the site selection factors, but determining a region's true wage rates is not always at easy task.

Dr. C. R. (Buzz) Canup, President, Canup & Associates, Inc.  (Jun/Jul 08)
(page 2 of 2)
Another Data Source
A popular alternative to using Bureau of Labor Statistics data is to use information reported in County Business Patterns (CBP). CBP information and data is compiled by the U.S. Department of Commerce based on an annual survey of all major businesses in North America. Businesses are required by law to respond to the survey. Since this information is compiled on an annual basis, it tends to be more up-to-date than BLS data, although CBP information and data is typically two years old by the time it is published.

Additionally, one should be aware of characteristics of CBP data that can be misleading or misinterpreted. For instance, CBP does not report any wage or salary data for government employees. When one considers that government employment typically represents 25 percent or more of total employment within a region, a significant amount of employment and cost of labor data is missing. Similarly, the information reported by private business and industry on an annual basis may be skewed based on the manner in which the U.S. Department of Commerce protects individual employer information. Commerce will not report information on a particular occupation if there are not sufficient numbers of businesses within a given occupational classification to protect information from individual businesses. Hence, reported data may not be fully representative of the county.

Corporate Survey 2007
Combined Ratings* of 2007 F actors
Site Selection Factors                   2007
Ranking
1. Highway accessibility 96.9
2. Labor costs 92.3
3. Energy availability and costs 89.0
4. Availability of skilled labor 88.7
5. Occupancy or construction costs 88.2
6. Available land 85.4
7. Corporate tax rate 83.8
8. State and local incentives 83.4
9. Environmental regulations 83.2
10. Tax Exemptions 82.8
*All figures are percentages and are the total of "very important" and "important" ratings of the Area Development Corporate Survey and are rounded to the nearest tenth of a percent.
Field Work
So how can one determine wage rates within a specific geographical region? Using BLS or CBP information and data is an accepted practice among many businesses, organizations, and consultants. However, one needs to be keenly aware of the characteristics of the data as just described. Using ranges of wage data from these sources for screening purposes is much more reliable than using a single-point average wage for qualification or elimination purposes.

The bottom line, however, is that nothing can take the place of good, hard, current field work, including interviews with existing business and industry representatives, to identify and determine average wages by occupation for a specific region. Whether the field work is performed by a consulting organization engaged by the local economic development agency to define average wage rates by occupation for the region, or whether the information is gathered on an individual project basis by a site location consultant or a representative of the prospect's company, nothing can take the place of fresh, face-to-face information gained from interviews with existing business and industry representatives. Not only can current and more accurate wage data be collected, but also many additional characteristics of the local work force can be collected at the same time. These characteristics include, but are not limited to work force availability, trainability, productivity, and, unfortunately, drug abuse.


In Sum
Cost of labor is a significant factor in every site location study for every type of business. Affordable or attractive labor costs can become a magnet for the attraction of new business and industry, as we have seen through the massive out-migration of many U.S. businesses to "cheap labor" locations overseas. We have seen similar transitions within the United States as businesses have relocated to geographical regions offering total lower operating costs, much of which are comprised of labor costs. Expect this factor to be at the top of every site location study, and expect it to have a significant influence on the final location decision. Just make sure that reliable and valid information is used to make that final decision.

Canup & Associates is a full-service management consulting firm specializing in site location studies for private business and industry, incentives negotiations, economic development consulting for states/regions/communities, and project implementation. Dr. Canup, president and founder, has more than 30 years experience in a broad range of management and consulting services, both domestic and international, and both public and private.
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