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Evaluating Labor Costs -in Good Times and in Bad

Has the loss of 5.7 million jobs had an impact on the consideration of labor costs in the site selection decision?

June/July 09
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Using the Right Tool
Each reporting source provides benefit to the location and site selection process. Using the right tool for the job becomes as important as the data itself.

Having somewhat dispelled the usefulness of broad, published statistics for final location decision purposes, do they have a use and, if so, what are they telling us?

As most people have come to realize, "site selection" is a misnomer - the professional "eliminates" sites based on every increasing detail of specification. Government published statistics (i.e., BLS, County Business Patterns, work force boards, etc.) are looking in the rearview mirror and documenting the past but may point toward trends in the future.

Take for instance private industry wage increases. For the year 2008, as the slowdown accelerated, the yearly increase was 2.5 percent. But as the unemployment rate increased from 4.9 percent in January 2008 to 7.2 percent in December 2008, the quarterly wage increase diminished from 0.7 percent for the first quarter to 0.5 percent for the last quarter. With the latest reporting from the BLS, private industry wage increases for first quarter 2009 are a mere 0.2 percent. Clearly, the private sector has responded to the current economic conditions and is attempting to control current labor costs through attrition (April 2009 unemployment was 8.9 percent) and diminished wage increases.

Most economists see this trend continuing for 12-18 months, even as the general economy improves. This places the current location decisions in an environment of increased supply and lowered expectations of wage increases. For those facility types which are sensitive to geographically differenced labor cost, it appears that now is the time to utilize specific location attributes to position the organization for the future - prior to supply and demand coming back in alignment.

In Sum
The results of the Corporate Survey indicate "labor costs" ranked as the second-most-important factor that is considered when rendering a location decision. This is consistent with the survey results from previous years - even during the current economic climate that has clearly seen relaxed pressure on upward wage increases. As a result of the current economy, many reporting sources are inaccurate due to the rapid changes occurring - on even a daily basis. The reliability of even recently published wage data - in our opinion - should not be the sole source of information utilized to make critical decisions. Use published data for high-level evaluations but - by all means - take the time to conduct local employer interviews to finalize any long-term location decision.

Les Cranmer and Art Wegfahrt are location and real estate consultants in the Corporate Services Practice at Studley, Inc. Collectively, they have over 66 years experience in advising corporations on strategy, location selection, and implementation.

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