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Area Development - Site Selection, Facility Planning and Workforce Development

The Labor Challenges of Site Selection

A careful evaluation of a site’s labor force is needed to guard against unwelcome surprises.

Q1 2022
You’re evaluating a new site. It checks all the boxes when it comes to the property, local infrastructure, and business climate. You have one more box to check — labor supply. You’re presented with a hodge-podge of numbers. How can you make sense of it all? And what’s the bottom line?

Understanding Labor Data, Availability
Before considering the outside numbers, you first need to understand your own data. You should know how many workers you’ll need by job title as well as the estimated wages you can budget for each. Labor data are typically available by occupation, so you’ll want to translate your job titles into an occupation taxonomy, such as the Bureau of Labor’s Standard Occupational Classification (SOC) System. O*NET OnLine is a useful, free resource that can help you in the title-to-occupation translation process if you need it.

Detailed labor data are most frequently found as estimates of current employment by occupation. The Bureau of Labor Statistics publishes these estimates by metropolitan area. Alternatively, you can obtain estimates at other levels of detail from a labor data provider. In any case, when you look at these data, you should be aware of a few factors.

First, a metropolitan area is often a fair model for a labor shed, the area from which you are likely to pull the majority of your workers. But this isn’t always the case. Some metro areas are so geographically large, that it is not reasonable to expect a typical worker to commute from one end of the region to the other. Other metros are so small, or located near other population centers, that you may reasonably pull workers from outside your metropolitan area of location.

Performing a Drive-Time Analysis
You may need to look at the labor availability at a more specific geographic level for more realistic estimates of the supply of workers. A drive-time analysis is the best practice here. For example, suppose that workers are typically willing to drive 45 minutes for some of your positions. Define a 45-minute drive time perimeter and analyze the availability of workers within that geography. There may be enough skilled workers for your operation in a metropolitan area overall, but if they live too far away, you won’t be able to attract them to your location.

You should know how many workers you’ll need by job title as well as the estimated wages you can budget for each. A drive-time analysis should also capture any impediments to travel in a region. Travel time analysis during rush-hour is critical for some markets. Some regions also have choke points like bridges or tunnels that will be limiting. Public transportation options may also need to be factored in. Finally, you may want to consider multiple drive-time lengths depending upon the occupation supply you are analyzing. Workers are generally more willing to travel longer distances for higher-paying jobs Another important distinction is that the drive-time approach only works if your employment data are defined by where people live as opposed to where they work. If you are only looking at broad geographic data, such as at the metropolitan area level, place-of-work versus place-of-residence employment numbers can often give fairly similar results. Employment patterns at the zip code or block level, however, will typically look very different in terms of at-work versus at-home, and it is these more refined geographies that are needed to properly define a drive-time.

Factoring in Unemployment Statistics
Despite the emphasis on employment numbers, don’t forget about the unemployed, who are also an important source of labor. Even when the overall unemployment rate is low, the rate by occupation will vary considerably.

A metropolitan area is often a fair model for a labor shed, the area from which you are likely to pull the majority of your workers. For example, the overall unemployment rate (not seasonally adjusted) in the United States was 3.9 percent in November 2021. Among the major groups, however, unemployment varied from as low 0.8 percent for healthcare practitioners and technical occupations to 7.7 percent for food preparation and serving-related occupations. Unemployment rates are typically higher for jobs requiring only short-term on-the-job training, such as construction helpers or packers and packagers.

Demographics, Education, and Training
Population demographics can be a helpful proxy for identifying areas with certain types of workers. For example, higher educational attainment is linked with higher income. Areas with higher aggregate educational attainment may be fertile grounds for some of the higher-wage, higher-skilled positions you need to fill. Regardless, don’t forget to also look at the age mix. A region may have a robust supply of the highly educated population you are targeting, for example, but the region may lack the younger workers you expect to hire in your new operation.

Another factor that may be important is the education pipeline. This refers to the graduates from local schools. Each occupation has its own typical pipeline. In some cases, this will include high school career and technical program graduates. In other cases, you may be primarily looking at programs and graduates at the community college level. You also may find a significant supply of workers from local colleges and universities. Don’t forget about large universities, such as state schools, that may not be in the immediate vicinity of your potential location. Every region has unique enrollment patterns. You’ll want to understand which schools most feed into the labor supply in your market area.

The drive-time approach only works if your employment data are defined by where people live as opposed to where they work. Training can also be an important consideration for labor availability. Many occupations are positioned along active career pathways. When considering the labor supply for such occupations, you’ll also want to look at the supply in related careers. Many of those individuals in related positions may be ready to move up, or willing to move up with additional training — assuming, of course, that the wage differential is accommodating for the career change.

Cost of Labor and Living
Wages data can be described with a variety of metrics: “mean” or “median” wages as well as specific percentiles. Keep in mind that your offered wage is going to impact the analysis of the availability of labor. For example, suppose the labor market you are considering contains 4,000 welders with a median wage of $25 per hour. If you plan on offering a wage of $25 per hour for these positions, you won’t have access to the full 4,000 workers. By definition of “median,” half the workers earn a higher rate than that. If you plan on offering the median wage, the available labor estimates need to be cut in half.

Cost of living is also important to keep in mind. To quantify this, you can look at individual prices such as average rent or home prices, or consider an index that captures overall consumer prices in a region. For example, say you are considering a location where cost of living is 10 percent higher than where you have an already established operation. Suppose you have had success paying $25 per hour for your welders at your current location. Due to the increased consumer costs at your new location, you may have to increase this wage 10 percent, which would take your expected welder wage up to $27.50 per hour.

Looking at the Competition
Finally, you’re going to want insights on your competition for labor at your new location. You may have multiple sets of competitors — for example, one set for your production talent and a different set of competitors for your white-collar talent. One way to gauge the competition for local talent is by examining online job ads. Accessing aggregate data is the best way to proceed here. With job ads data, you can break down which companies are hiring for specific positions. You can view trends over time or look at the real-time state of the market. You can compare job requirements, job duties, and sometimes even find information on wages and benefits.

Areas with higher aggregate educational attainment may be fertile grounds for some of the higher-wage, higher-skilled positions you need to fill. Job ads, however, reveal only the desired characteristics of new hires. For a view of the actual characteristics of the incumbent workforce, you can use another online data resource — worker profiles or resumes gathered from the web. In either case, you’ll still only be looking at a sample of all workers and companies, but these data are typically rich in providing a glimpse of the labor market at your potential site.

If you’re looking to perform a skills analysis, i.e., examining the supply and demand of labor in terms of specific skills and credentials, job ads and profile data will be a critical source. Defining labor needs by occupation is frequently sufficient, but sometimes the occupation taxonomy can be overly broad and not refined enough to distinguish skill levels that may be critical for your assessment.
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