In today’s labor market, it can be extremely difficult to find quality labor. The effects of COVID-19 and responses to the pandemic continue to drive wages up. Distribution employers will need to stay ahead of these trends to control costs in the coming years and budget accordingly. We looked at wage escalation in the distribution center industry to understand national trends.
Distribution center activity heavily gravitates to populated markets
Due to a variety of factors including access to consumers, proximity to major cities and ports, availability of workers and robust transportation networks, most distribution center activity is focused on large metro areas. We focused on metro areas with a population of more than 500,000 when researching wage inflation and how it correlates to occupation concentration. There are 111 metro areas in the United States that fall into this category.
To evaluate activity, we looked at a basic metric of a location quotient which compares a metro area’s concentration of employment to that of the national average. A location quotient of 1 means that a metro has the same concentration of that occupation compared to the national average.
High wage escalation in the western U.S. and other major markets
The following table shows the 10 metro areas with the highest 5-year average wage escalation. There is some geographic diversity among these communities, but 4 of the top 10 are in California, and the remainder are very active markets for distribution activity.
The following table shows the 10 metro areas with the lowest 5-year average wage escalation. Again, there is large geographic variance in the results, but we expect wages in these areas to grow as well, albeit at a lower rates, primarily due to changes in minimum wage laws and continued demand for workers with these skill sets.
Finding areas with talent but modest wage escalation
In the battle to hire and retain a qualified workforce, distribution center operators need to balance finding markets with trained talent with those that have manageable workforce costs and locations that don’t significantly increase drayage/transport costs. The following table shows the 10 metro areas with the highest location quotient that have a historical average wage escalation below the national average. This includes, for example, a traditional distribution center market in Memphis, active distribution markets in Pennsylvania, and a California market in Stockton.