The COVID-19 pandemic caused a significant disruption in the labor force, the effects of which are still with us today and will be well into 2023. Labor shortages, dramatic cost increases, fundamental shifts in where and how work is done, and greater demands (both internal and external) for accountability in the selection and compensation of employees mean companies are trying to manage many changes simultaneously.

Location selection is challenging enough in a consistent and predictable environment. However, today’s ever-changing labor market means corporate leadership teams have more to consider. Below is a brief discussion of the significant labor trends impacting site selection strategies now and into the future.

Labor Shortages

The national unemployment rate has been hovering between 3.5% and 3.7% since March, and labor shortages continue to plague businesses of all kinds. In August, the Wall Street Journal reported, “The labor force is about 600,000 smaller than in early 2020. It is several million smaller if you adjust for the increase in population.” There are a number of theories regarding the cause.

According to calculations of census data from economists at the University of California, Davis, there are about 2 million fewer working-age immigrants in the U.S. because of COVID-19 immigration restrictions.

Increased retirement and bargaining power of workers are also affecting labor shortages. Economists at the St. Louis Fed report there were 3.3 million more retirees as of October 2021 than there were in January 2020. The number exceeded pre-pandemic demographic expectations.

Last year’s “Great Resignation” had nearly 47.4 million people quitting their jobs to find better work.

Labor Costs

Labor costs are a major operational cost component and an important site selection factor for companies. According to the U.S. Bureau of Labor Statistics report released in October 2022, compensation costs for civilian workers increased 1.2%, seasonally adjusted, for the three-month period ending in September 2022. Wage and salaries increased by 1.3%, and benefit costs by 1.0%. While these increases may be slightly slower than those reported in the previous quarter, labor costs are driven by labor shortages and inflation, and both are leading to wage pressure.

In the fieldwork we have been doing with clients assessing potential locations, employers are telling us they feel labor costs are approaching a plateau. Costs are not expected to continue rising as dramatically as in recent times, but they also aren’t going to drop back down. Ever.

Remote Versus In-Person ‍

According to the projections of data scientists at Ladders, 25% of all professional jobs in the U.S. will be remote by the end of 2022, and remote opportunities will continue to increase through 2023. Remote work policies vary. Some companies will still require employees to be in the office part-time or periodically. The frequency will determine the size of the labor catchment area to be studied. Employees who only need to be in the office once or twice a week may be willing to drive an hour or more, whereas tolerance for a daily commute would likely limit the catchment to 30-45 minutes, depending on the type of position. Thus, remote work policies will have an impact on site selection strategy, as well as the definition and analysis of the potential labor pool.

Environmental, Social and Governance (ESG)

Environmental, social and governance (ESG) metrics have become an integral barometer of overall business success. Companies are increasingly looking to integrate ESG objectives into their site selection decisions — prioritizing locations that will make it easier to reach the company’s environmental and diversity goals — reinforcing a company’s values and nourishing the desired corporate culture. Already a trend prior to the pandemic, corporate America’s focus on diversity and equity goals was amplified in response to the increased social unrest of 2020.

The national unemployment rate has been hovering between 3.5% and 3.7% since March.

More than ever, choosing the right location means being carefully attuned to labor market dynamics. There aren’t any easy answers to a challenge of this size, but we’re helping clients dive more deeply than ever into the supply-demand balance of labor in potential markets to better understand the depth of the existing labor pool, the region’s ability to attract immigration, and the strength and ingenuity of the educational pipeline to meet current and future demand for workers. We’re helping them explore the ways in which they can have greater control of their destiny through apprenticeship programs, engagement in the local school systems, and compensation structures specifically designed to be competitive with local practices, and we’re ensuring that clients and communities are connected in ways that will provide “win/win” solutions.

This article was also seen in Site Selection Magazine's 2023 Workforce Guide.