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The Art and Science of Assessing the Labor Market

Only through a combination of data analysis (the science) and labor interviews (the art) can a company be sure of choosing a location where its workforce needs are satisfied now and in the future.

Q2 2018
As a corporate executive team analyzing the right community in which to locate its next company investment, access to a deep labor pool with the appropriate skill base is one of the most important project drivers to thoroughly understand. More than any other site selection factor, evaluating the labor market accurately will enhance or inhibit your company’s success and return on investment in a chosen community. Misreading the labor market reduces profitability due to high turnover, inability to fill positions, and/or the need to recruit from outside a labor shed area to find/relocate workers.

Labor markets are complex and inherently capricious, and potentially filled with unexpected pitfalls even when one is seemingly doing the proper due diligence. Veering off course — and making wrong inferences and conclusions — is easy to do without the right framework to guide one’s decisions. So how does one go about reading the market accurately? In short, it comes down to analysis and executing a plan around two broad but related questions:
  1. Do enough workers with the skills I need exist in this location now and likely for the full anticipated lifecycle of the investment?
  2. Can I regularly access these workers for the full investment cycle, or could local competition for them increase or labor pools change, thus limiting the long-term success of the project?
Making a Comprehensive Study
To answer these questions accurately and affirmatively and reduce the risk of a poor site selection decision, a comprehensive study of an area’s established labor pool and talent pipeline is critical. This analysis includes several interrelated components.

The first is a demographic analysis of workers in the marketplace by occupation and skill. This usually involves mapping standard occupational codes anticipated to be hired at the project against the public and privately produced data sets that analyze worker data down to the regional, sub-regional, county, and municipal level. Although it rarely happens, ideally one will find a community to have a concentration of workers well above the national average for all key occupational codes.

Locations that are at or below the national average for key occupational codes should be flagged for further analysis, with the potential for elimination absent other supporting data that indicate a pipeline of potential workers. To make up for shortcomings in the number of workers in targeted occupational codes, look for efficiencies and availability in the labor supply in related occupational codes that can be “cross walked” relatively easily to the preferred occupational classifications using on-the job training and retraining provided by local training providers and subsidized through a state or local economic incentives package.

A worker having a skill set on paper is different than the human experience of how that skill set is deployed. It is also important to think about worker data in the context of historical and projected population trends. All other things being equal, a location with high population growth or in-migration, higher labor force participation, and a younger demographic profile generally will ensure a better chance of long-term success than one that has workers who are aging out and not being replaced by in-migration or organic population growth from younger generations.

Additionally, locations that have a clear plan to create and train needed workers (with a proven track record of success that can be verified) can also be critical to overcoming inherent data deficiencies in the labor market. A thorough analysis of the area’s training providers and educational institutions — and types of graduates/skills they produce as well as the placement and success of their graduates — is key to understanding whether these gaps can be overcome. Do local educational institutions have a track record of placing their pipeline into local employers, and if so with what success? Do educational institutions regularly meet with industry to tailor programs to the needs of the job market, or is education isolated from market demand?

Performing a Series of Interviews
While the above are strategies to set you on the right path, data itself can only tell so much, and a purely data-driven analysis will overlook important subtleties in the labor market that can torpedo a project if not uncovered upfront. The most effective way to uncover the story behind the data is an in-market series of labor interviews with like employers. In these interviews one can discover important subtleties not picked up in the data, such as competition for labor supply among employers.

On a site selection assignment a few years ago, I was representing a not-for-profit headquarters that had shortlisted four finalist markets. We were working in one of the finalist locations which otherwise had all the right labor characteristics and demographic trendline characteristics to be an excellent long-term location for our client. As we performed several interviews, a major theme began to emerge among our client’s peer group: talent recruitment was a major challenge, even with a seemingly large number of people (including a large in-migration of people moving to this community). The not-for-profit executives we interviewed stated that even when the economy was average, major for-profit headquarters (which are plentiful in this metro area and growing) can and do hire at better salaries. Not-for-profit executives in this market frequently leave for for-profit employers. In this case, the labor market isn’t so much about access to talent, but retention of talent once accessed and hired.

The study of a labor market is both an art and a science, with one informing the other and each being important to an accurate evaluation as it concerns both near-term and long-term implications of a successful site selection decision. This type of labor churn trend was not evident in the data and would have been highly disruptive to our client had we selected this community. Each client assignment is loaded with these types of subtleties based on the specific employment profile of a client’s project that only private confidential interviews can fully reveal. Other important items often picked up in the interview setting include geographic subtleties within metro areas — i.e., on which side of the river, highway, airport, etc. can I find these types of workers, and what are their commuting patterns? Subtleties of employer experiences in recruiting and retaining talent are also revealed — i.e., where does the employer recruit locally for talent and how long does it take to fill an open position? Even thoughts on whether people tend to be loyal to their employer and stay in their jobs or leave them more frequently can be revealed in the interview process, as can the ease or difficulty of recruiting key executives from out of town and any resistance to the community and why. These face-to-face conversations are a treasure trove of information critical to a deeper understanding of a community’s labor market.

The Art & Science
The study of a labor market is both an art and a science, with one informing the other and each being important to an accurate evaluation as it concerns both near-term and long-term implications of a successful site selection decision. A deep and thorough data analysis of the market (the science) is the critical underpinning; however, only by seeing through, inferring, and parsing the data with qualitative real-life experience via labor interviews (the art) can one confirm the science is good science and the data is good data.

A worker having a skill set on paper as a data point is different than the human experience of how that skill set is deployed within the context of the emotional and capricious nature of human behavior in a workplace. Although no labor market and its workforce are like any other, with thorough preparation from a quantitative and qualitative perspective, labor markets can be understood and expectations managed, resulting in a location decision that is both logical and arrives at a successful conclusion.
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