Interpreting the unemployment numbers

HEADNOTE

The existence of a pool of seasonal workers or underemployed individuals can skew an area's unemployment figures on the high or low side, respectively, giving an inaccurate picture of its labor market situation.

MANAGERS ARE WEARY of dwindling

labor pools, tight labor markets, and high turnover. Hiring people in tight regional markets is tough. Wages and benefits typically escalate to remain competitive, which hurts the bottom line. For companies that want to relocate (maybe for this very reason) or expand, labor availability is the number-one concern.

Therefore, how does a company find the best possible labor pool for its business? Analyzing unemployment figures is a good start, but managers need to dig deeper to understand the dynamics of each labor market on the company's list.

Identifying Needs

Companies must understand exactly what the requirements are for the new employees they seek. Depending on what kind of help they're looking for, labor markets can vary tremendously. What might be an ideal market for unskilled labor is unsuitable for skilled labor.

Wages and benefits must also be considered. If a firm's wages/benefits are higher than average, chances are it will do well in a tight market (say, 2 percent unemployment) by luring employees away from similar businesses. If a company needs skilled labor, does it care if the labor is unionized? Do workers need to be bilingual? All these factors play into targeting new sites.

"Many firms have a tendency to overstate the education or experience requirements for job positions, which can totally change where they look for labor," says Clinton Hoch, director of location advisory services for DCG Corplan Consulting in New Jersey. "Take call centers, for example. Do the people who answer the phone really need to have a college degree? That unnecessary requirement will limit a company to only a fraction of the available work force. In fact, people with college degrees may become bored and leave."

How about quality of life? Areas with a "high" quality of life tend to have lower unemployment rates because people will do almost anything to stay at these locations. This can be good though, because even if unemployment is low in these areas, there is usually a high percentage of underemployed workers those who are overqualified for the generally dissatisfying jobs they hold. This "hidden" source of labor can be quickly tapped.

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What the Numbers Mean

The first step is looking at the unemployment numbers. The higher the unemployment rate, the greater the worker availability. The federal Bureau of Labor Statistics tracks both national and local labor force data. It also tries to evaluate the "discouraged" work force, i.e., people who are capable of working but are not seeking employment for a variety of reasons including age, lack of experience, and lack of child care. "An example of a discouraged worker is one who could earn $7 an hour but needs to spend $6 an hour on child care," says Nelse Grundvig, research analyst with Job Service of North Dakota.

"Companies need to know that areas are shifting rapidly," says Hoch. "Labor market [statistics] on an annual basis are not as important as their month-to-month fluctuations." Seasonal employment (in agriculture, tourism) can radically change unemployment numbers, depending on the month. Seasonal workers often take work because full-time jobs aren't available. The margin of error is higher for state unemployment data. These unemployment figures do not take into account underemployed or discouraged workers.

It's a misconception that there must be something wrong with an area that has high unemployment. "Available labor is a natural resource that should be treasured, like water, fuel, or raw materials," says Robert Crowley of the Texas Workforce Commission. He cites Beaumont-Port Arthur-Orange, a triangular area along the Gulf of Mexico that has a high standard of living, excellent wages, and a varied work force. The higher unemployment rate is due to the cyclical nature of local industry.

Alternatively, just because an area has a low unemployment rate doesn't mean it should be immediately assumed there are not enough workers to go around. Take a look at the participation rate of the 16-and-over population. How many are working? "Wisconsin's rate varies from about 60 percent to 85 percent - a tremendous difference," says Terry Ludeman, labor economist with the Wisconsin Department of Workforce Development.

Additionally, participation rates might be quite low for the elderly, minorities, women, or college students. Establishing benefits attractive to women, such as child care and flexible scheduling, can be highly effective in drawing women from the nonparticipation ranks.

Most experts agree that underemployment is about 50 percent of the unemployment rate. "Turnover rate and productivity are other indicators we try to analyze," says Hoch. Turnover can be 60 percent or higher for some jobs where burnout is high, such as in telemarketing.

Digging Deeper

Company managers, therefore, need to look beyond the actual unemployment numbers. First, it is important to know why the unemployment rate is high. Is it because of recent layoffs? Lack of skilled workers? Seasonal employment? Language barriers? Are any of these a danger to the business?

Also, a company should take a look at its competition. Are its wages higher and its benefits better? That can make a huge difference in finding workers in an area of low unemployment. Managers should study the local population to determine what they value. If a company can outperform the competition, it can move into just about any area, regardless of the unemployment numbers.

Also, managers must be sure to look beyond city limits to take into account commuters who may be traveling up to 1.5 hours each way. The company must define a commuting range. "Local firms complain about the paucity of applicants for their unfilled job openings, but these same companies may be overlooking opportunities in nearby labor-surplus areas," says Hoch. One approach might be to set up a satellite operation midway between these areas.

Immigrant Labor

Many of our ancestors immigrated to the United States seeking equality and prosperity. This is still happening today. Of course, the border states know this well. Immigrant labor is a less-recognized resource in the Midwest, simply because immigrants tend to settle on the east or west coasts.

"The Midwest has a very low population of [immigrant] ethnic groups," says Ludeman. "Communities with sizable ethnic populations have more births and more young people looking for work. Cities such as Milwaukee, Racine, and Beloit have overall low unemployment rates, but include pockets of available workers in the ethnic sectors."

Ludeman believes that companies will have to utilize labor populations they haven't used before. It's simply a matter of math: Births in white families are at all-time lows and elderly populations are on the rise. "Of the projected 130 million increase in population over the next 45 years," says Ludeman, "only 16 million will be white. The greatest growth will be in the Hispanic, African-American, Asian, and Native-American populations."

Allen-Edmonds Shoe Corp. is headquartered in rural Port Washington, Wisconsin, 30 miles north of Milwaukee. "Finding plant workers was really tough," says the firm's president, John Stollenwerk. "We were hiring lots of good workers from the inner city, but they had difficulty getting here. We were bussing them, giving them loans for cars...It was crazy. Turnover was way too high."

Instead Stollenwerk decided to bring the work to the people. He rented a business incubation building in Milwaukee's inner core and hired about 100 local workers. Production has been so good that Stollenwerk has purchased land a few blocks away to construct a new facility.

"These people have the skills and the work ethic we need," Stollenwerk continues. Turnover has dropped from 20 percent to less than 5 percent. Most of the workers are immigrants from Latin America, India, Korea, and Russia.

"We have a lot of fun," adds Stollenwerk. "It's great hearing all the accents. Our people are very dedicated and grateful to have a job. Their work ethic is to be commended... [They] appreciate the opportunity to work."

Historically High Unemployment

Located along the Texas gulf coast, the Beaumont-Port Arthur-Orange area (population about 300,000) historically has registered unemployment rates that were double the state average. (In March 2001 Texas' unemployment was 4.0 percent and Beaumont's was 6.9 percent.) Its core industries are maledominated shipbuilding, manufacturing, and petrochemical production. A large number of women are available for work, especially in office opportunities. Beaumont offers a good standard of living and a unionized work force.

West Corp., headquartered in Omaha and one of the world's leaders in telemarketing, recently opened an inbound call center in Beaumont.

"Unemployment in Omaha is about 2 percent, and it costs a lot more to employ people and retain them in that tight a labor market," says Cliff Bennett, West Corp.'s site director. "We typically look at areas that have 9 percent to 12 percent unemployment rates and sizable populations."

West Corp. requires an easily trainable work force; its basic requirements are passing a reading test and typing 15 words per minute. Starting salary is $7 an hour.

"Being 24/7, we offer shifts starting every half hour," Bennett indicates. "To date we have hired 800 workers and will hire another 1,700 by September." West Corp. has definitely tapped the nonparticipatory female population - 85 percent of its employees, including management, are women.

Historically Low Unemployment

New Hampshire is known as one of the most stable employment areas in the nation. Its 2 percent unemployment rate in 1999 was the second-lowest in the country; last year it had the nation's fifth-lowest unemployment rate among the states, and in March 2001 the unemployment rate was 2.6 percent. A company's first thought might be to look somewhere else. Yet new industry continues to move into the state and finds available workers.

"When Fidelity Investments moved to Merrimack in 1996-1997, the company had two HR firms assess the area first," says David Mullen, director of the Pease Development Authority near Portsmouth. "The company didn't believe the demographics would meet its needs. After deciding to go ahead, Fidelity advertised 350 jobs, and within six weeks they had received more than 11,000 applications."

"Pockets of higher unemployment do exist in the state, as in Rochester, where core manufacturers have laid off workers," informs Martin Capodice, research analyst with New Hampshire's Department of Employment Security. "But people stay because of New Hampshire's quality of life."

That stability is one reason companies continue to come to New Hampshire. Moreover, companies that locate near the border with Massachusetts can raid Lawrence (4.1 percent unemployment) and Lowell (3.1 percent unemployment) for workers, or employ those individuals who live within the commuting corridors.

Also, high-tech companies are attracted to the Massachusetts-New Hampshire border because a number of high-tech employees who lost their jobs years ago have stubbornly remained, surviving as consultants and creating a highly skilled labor pool.

"Because people refuse to leave to find jobs elsewhere, we have a huge number of underemployed," says Mullen. Pease Air Force Base was decommissioned in 1991 and is now prime development ground. Mullen's organization leased in excess of 125 million square feet last year. "Right now we are 7-10 years ahead of projections," he says happily. "The new companies find their workers, even with the 2.5-3.0 percent unemployment rate."

Doing It

Companies considering a move or an expansion should visit with state economic development boards or labor information shops. A listing of labor market information offices (arranged by state) can be found at http://lmi.cdle.state.co.us/lmidir/lmofcd ir.htm. Information from the Bureau of Labor Statistics can be found at www.bls.gov.

"Labor departments are one of the most overlooked resources," says Ludeman. "In Wisconsin, for example, we do a variety of baseline studies for companies which take anywhere from 20-40 hours - and they're free." Other states may charge for their services, which include marketplace analyses and studies of worker distribution and wages. Although time-intensive, total costs are typically $5,000 or less.

Consultants, in addition to being experts on the numbers, routinely interview hundreds of corporations and have access to proprietary labor data. "The process is more complicated than it may appear," says Grundvig. "We analyze demographics every day and can run different scenarios of expansions using a host of variables."

If a company chooses to undertake the hunt with its own personnel, those individuals charged with the task should understand the details of labor market information and analysis. (Degrees in sociology or economics are recommended.)