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Where Has All My Labor Gone?

Changing demographics are likely to alter corporate location and growth strategies as well as the policy decisions of economic development organizations.

Darin Buelow, Brad Lindquist, and Ai Li Ang , Global Expansion Optimization, Deloitte Consulting LLP  (Jun/Jul 08)
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Location Matters
When combined with immigration and worker migration, the demographic impact of the aging population will create supply imbalances that will impact corporate and policy decisions (Chart 4).

By 2030, five states - Texas, Florida, Nevada, Arizona, and Utah - are expected to experience labor force growth at a much greater rate than the U.S. average, as in-migration and immigration to these states outpaces the effect of retiring workers. On the other hand, projections for 13 states in the eastern Great Lakes, Northeast, and Great Plains are for a smaller to significantly smaller labor force, drawn down by the aging population, low or negative population growth, out-migration, and potentially fewer immigrant workers. Stated more clearly, by 2030 these 13 states are projected to have fewer workers, in real numbers, than in 2000. Another 15 states will experience net growth by 2030 below the estimated U.S. average of 20 percent, a rate already far below the expected pace required to support historical GDP growth.

It follows that states with CLF growth outpacing the projected U.S. average will be in a much better position to support economic growth and, accordingly, will be more likely to achieve success in retaining and attracting business investment. The opposite will likely be true of those states with a declining or slowly growing work force unless they have some other significant compensating quality, such as access to a critical customer or supply base, a low-cost resource, or access to a highly unique set of workers.

The implications for corporate location strategy, in terms of rationalizing the existing footprint and making future location and deployment decisions, are significant. First, companies will need to place much greater focus on near-term and long-term labor market trends as they determine how to retain and attract talent. And, in turn, the location decisions that companies make will have long-term implications on the future success and competitiveness of U.S. regions, states, and municipalities. Cites and regions with sought-after quality-of-life attributes and amenities will continue to emerge as "business location hot spots" due to their appeal to the shrinking, but mobile work force.

Second, the war for talent that has been "simmering" the past decade will slowly but steadily escalate into an all-out boiling conflict for skilled resources. Labor competition will enhance the gap between winning and losing communities as locations for companies seeking the best talent at the lowest price. While employers will continue to look to technology and innovation to minimize the numbers of hourly or line workers required, competition for management, technical, sales, engineering, development, and even production functions will likely stiffen. More companies will adopt flexible work programs to enable workers to contribute remotely and, therefore, increase retention in an increasingly competitive labor market. Wages are likely to increase, forcing more companies to rationalize and balance their U.S. deployment strategy with options in countries with less-expensive and more abundant labor markets. More, and smaller, companies will consider global labor market solutions to remain competitive.

For government and other policymakers tasked with the economic development of their areas, the shift in strategy is likely going to be even more significant. Faced with a flat or shrinking work force, increased social costs, and an aging infrastructure whose replacement requires funding from increased tax revenues, governments will have to determine where the money is going to come from and when. First, for most states, economic development strategies will likely shift from an emphasis on job creation (demand focus) to work force growth and retention (supply focus). Some examples of labor supply policies are already in place, as follows: • The state of Utah, in addition to a more traditional offering of economic development incentives meant to attract and retain businesses, has recently proposed enhanced incentives to companies that relocate employees to the state versus projects that just create new jobs.
    * • A medium-sized town outside of Indianapolis offers incentives not only to new businesses, but also to employees of the new business that relocate to the community. Property tax exemptions for new homes built by relocating management employees of new companies encourage both population growth and the ability to capture skilled professional labor.
    * • The state of Georgia's HOPE Scholarship Program was introduced in 1994 to encourage academic achievement of Georgians attending secondary and post-secondary institutions in Georgia. This program not only promotes the increased skills base of the Georgia population, but may also encourage Georgia residents to stay in Georgia, enabling demographic stability.
    * • Singapore, a country of 4.5 million, has a surging economy and hopes to grow its population to more than 6 million over the next few years to meet the growing demand for skilled and technical workers. Singapore's aggressive Guest Worker program and generous job training grants that allow companies to train new workers in foreign countries and return them to Singapore for permanent work is meant to encourage work force growth and expand the knowledge and skill base of the country.
    * • Ireland's open-door worker policy and the expansion of the EU allows for the availability of a large, multilingual work force drawn from the whole of Europe. The number of new direct flights from Ireland to Poland is evidence of the strategy to attract workers at all levels from outside its boundaries and to ensure that companies based in Ireland meet their work force needs.

Second, incentive policies oriented to attract manufacturing projects with large numbers of jobs will need to be re-tooled. Especially in manufacturing, high-labor-content industries are far more likely to locate in low-labor-cost countries, such as China, India, and Mexico, than in the United States. More and more, domestic manufacturing location projects typically are for heavily automated manufacturing processes and/or operations requiring relatively small numbers of skilled workers (less than 200). States and regions that continue to focus tax and other incentive programs exclusively on large employment projects will be at a distinct disadvantage.

Third, the federal government will need to consider raising the H1-B visa cap so as not to further stunt economic expansion. Technology and other high-skilled industries have lobbied for greater numbers of skilled foreign workers to be allowed temporary status as U.S. employees under the H-1B visa program. Currently, the annual quota of H1-B visas issued is 65,000, less than half of the applications accepted by U.S. Citizenship and Immigration Services in 2006. The demand for technical workers has been so strong that the application process was open for only one day, during which 150,000 applications were received.

Unfortunately, the demographic realities of slow population growth and work force aging have been determined and will march forward without compromise. Employers and policymakers who plan and prepare for this reality and develop corresponding work force attraction plans now will be better positioned to retain and attract the resources they will need to compete in the future.


Darin Buelow, Brad Lindquist, and Ai Li Ang are Chicago-based location strategists in the Global Expansion Optimization practice of Deloitte Consulting LLP.

Note: Statistical information in this article was taken from the U.S. Census Bureau, Population Division, Interim State Population
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