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High Unemployment Areas Offer Aggressive Incentives to Expanding and Re-locating Businesses

High-unemployment states are working to drive economic development, but does an available labor pool translate to an ideal location in a down economy?

Jennifer LeClaire  (Dec/Jan 10)
Global economies are on the road to recovery from what will go down in history as the worst recession in the post-World War II era. But cities across America may continue to see unemployment figures rise even as recovery is trumpeted from coast to coast.

With lingering problems in the credit and housing markets, re-employment is still a distant promise for hundreds of thousands of Americans, and some cities have been hit particularly hard. Indeed, IHS Global Insight forecasts unemployment rates will remain high for another year in many cities where the housing crisis was deepest and where manufacturing was at the center of the local economy.

IHS predicts up to 16 cities in California, Michigan, Arizona, Florida, Illinois, and Indiana may have unemployment rates higher than 15 percent even into the fourth quarter of 2010. In cities like El Centro, Calif., for example, the problem is magnified, with the possibility of unemployment hitting 26 percent in 2010. Rockford, Ill., may see 17 percent unemployment by the fourth quarter of 2010; and Detroit and Flint, Mich., may see high unemployment rates for even longer terms.

Site selectors are eyeing high unemployment states for opportunities to locate and expand where there are existing buildings and plentiful labor. With some states getting more aggressive and creative with incentives and training programs, site selectors are diving deep into due diligence and preparing to negotiate economic development deals that help hurting cities and position companies for long-term growth. But with every opportunity comes challenges. Plentiful labor doesn't always mean qualified labor, and available real estate doesn't always translate into suitable sites. Still, high unemployment states may be the answer for some companies in some industries.

Opportunities for Growth
In the face of a global recession, most companies aren't in high-growth mode - but many are still growing. For example, the energy, healthcare, and consumer staples sectors of the United States are cited as best-positioned for recovery from the recession, according to IHS. Leading companies in these sectors have strong balance sheets and are not directly vulnerable to the lingering effects of the credit crunch.

"Companies that have access to capital and have the wherewithal to expand may find cities with high unemployment rates extremely attractive. In this environment, qualified workers are rampant," says Katie Culp, a senior vice president in the Location Advisory & Incentives Practice at Colliers Turley Martin Tucker in Indianapolis, Ind. "There is an upside for companies willing to expand into high unemployment rate cities."

That said, companies exploring cities with high unemployment rates should examine the employment and unemployment trends before the recession began, according to Mark Sweeney, senior principal of McCallum Sweeney Consulting, a site selection consulting and incentive negotiation firm in Greenville, S.C.

"If the city had long-term 8 percent unemployment before the recession, then unemployment may not be a recession issue. This may be some sort of a structural issue or a labor-quality issue," Sweeney says. "So, the first thing you want to do is get a multi-quarter, if not multi-year, perspective on labor. You also want to look at the recessionary spike to find out what jobs have been lost, and, more importantly, what skill sets have entered the labor marketplace."

The Allure of Training Programs
Although high unemployment cities are bound to have some attractive skill sets, the $1 million question for site selectors is this: Are those skill sets transferable? Just because a community is home to thousands of people looking for jobs doesn't mean they are trained to meet the unique demands of your company.

Many states are launching new training programs, especially in cities where a major industry and its supporting service businesses have failed. But retraining individuals so they can add value in new industries remains a public-policy challenge to state and local governments. Location consultants agree that internal corporate training programs are vital to retraining efforts. The good news is there are dollars available in almost every state to assist companies in offsetting retraining expenses.

"Retraining individuals is a huge initiative and needs to be. Worker skills you find at an automotive manufacturer could easily transfer to pharmaceutical production. We've seen a number of pharmaceutical fill operations," Culp says. "But a company needs to be willing to retrain and know that it's going to take some additional time to retrain these workers before operations can begin."

High unemployment states like Michigan have enhanced their job-training programs, and many other states are reassessing the possibilities for future industry. As Sweeney sees it, states are willing to find a way to fund retraining programs if companies are willing to relocate or expand there. Distribution facilities may be in the best position to leverage opportunities in high unemployment cities.

"Our manufacturing clients don't tend to hire from unemployment rolls, but there may be particularly interesting skill sets in unemployment now that are worth looking at," Sweeney says. "Our large distribution facility project clients do make a habit of hiring off the unemployment rolls, so high unemployment cities may be more attractive. That may be a silver lining for some cities from a macro sense."

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