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Area Development - Site Selection, Facility Planning and Workforce Development

Critical Site Selection Factor #6: Labor Costs

How labor cost impacts total cost depends on the type of project being considered—headquarters, data centers, call centers/back office, retail, warehouse/distribution, manufacturing, etc.

Q4 2016
This series examines the top-10 location factors from Area Development’s Q1/2016 Corporate Survey that determine where our readers will locate and/or expand their facilities. Availability of skilled labor is their primary concern, followed by highway accessibility. Our readers are also concerned about prospective locations’ quality of life. Find out what else companies like yours should consider when making your next location/expansion decision.

For headquarters sites, labor costs are a top consideration, depending on total number of employees, how many employees are planning to move, and the skill levels required. Labor costs are also highly scrutinized for call centers and back-office projects.

“Labor cost is very important to our clients in these very competitive environments,” says Tim Feemster, site selection consultant and managing principal for Foremost Quality Logistics in Dallas, Texas. “The cost of labor is high on the list as a percent of the total cost of the operation, as well as the fact of the high capital costs for office buildout and technology per person employed. The higher/more complex skills required also drive the cost per person up. Although these operations can physically be located almost anywhere, they are generally drawn to locations that provide low labor costs in the categories needed, as well as an abundance of headcount to fill the jobs.”

Not Just Cost — Quality Too
Needless to say, labor costs are also a top factor for warehouse/distribution centers and manufacturing facilities — and usually need to be considered in terms of skill sets, availability, and sustainability. “Right-to-work” states (most of the South) typically have lower wages and are less unionized, two big draws to manufacturing companies (wages are about 10 percent less in right-to-work states). Local and state incentives built around training and workforce development can also significantly reduce total labor costs.

The cost of labor is high on the list as a percent of the total cost of the operation, as well as the fact of the high capital costs for office buildout and technology per person employed. Tim Feemster, site selection consultant, managing principal, Foremost Quality Logistics When highly trained, experienced workers are required, quality of labor is just as important as cost of labor. Therefore the least-expensive labor location may not always the best location for an operation. Availability of skilled workers is critical — is the region large enough to provide a high-quality labor force, even if competitors move in? Most companies looking for skilled labor are willing to pay a premium of up to 20–25 percent in labor costs, if the quality of the labor meets their needs. Hiring and retaining quality employees translates into less turnover, greater productivity, and more innovation. In addition, highly educated workers are more willing to invest in training, certifications, and credentials on an on-going basis.

“The availability of skilled labor is often as important as the cost,” says Feemster. “Without an adequate level of sustainable skilled workforce, it is very difficult to keep these types of operations open long-term.”

Working the Numbers
Labor costs are, in general, of less concern for data centers and retail. For data centers, this is because so few employees are required per square foot of operation. Even though these workers tend to be highly skilled and, therefore, a higher cost, the cost of power and water for running and cooling the operations, as well as capital costs, are typically far above that of employee costs.

Retail tends to be driven by traffic counts and income demographics. Without these two main factors being identified and above certain levels, companies will not spend the capital to open the operation, regardless of the cost and availability of the labor.

“If the company does decide to move forward with additional analysis, these positions tend to be low-wage jobs,” says Feemster. “They are harder to fill due to their higher level of part-time work, fewer benefits, weekend/evening/night work, and lower wage levels. In this environment, the abundance of an available labor force is a key advantage for any location being considered.”

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