The recent headline that has dominated the distribution center industry was Amazon’s announcement that it will raise its minimum wage to $15 an hour for jobs that routinely paid $11-$13 per hour. This announcement by the e-commerce giant has sent the industry into planning mode as other distribution center operators determine how they’ll stay competitive in the hiring landscape. Site Selection Group, a leading location advisory, real estate and economic incentive services firm, evaluates locations for distribution center operations across the United States.

Site Selection Group 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, availability of workers, and robust transportation networks, most distribution center activity is focused on large metro areas. For this reason, SSG focused on those metros with a population over 500,000 when researching the topic of wage inflation and how it correlates to occupation concentration. There are 107 metro areas in the United States that fall into this category.

According to the Bureau of Labor Statistics (BLS), the average annual wage inflation for distribution center occupations was 2.5% in 2018. Although this number seems low given Site Selection Group’s recent project experience, it is the best relative indicator from one metro area to another. Conventional thought would be that wage inflation is higher in markets that have high distribution center activity as the competition for employment is greater. To evaluate activity, Site Selection Group looked at the simplistic metric of a location quotient which compares a metro-areas concentration of employment to that of the national average.

Wage escalation does not discriminate against regions

The following table shows the 10 metro areas with the highest wage escalation from last year. There is great geographic diversity among these communities, but three of the top 10 are located in Texas.

METRO AREA STATE Annual Wage Escalation
Grand Rapids-Wyoming MI 7.4%
Fayetteville-Springdale-Rogers AR-MO 6.8%
Dallas-Fort Worth-Arlington TX 6.2%
McAllen-Edinburg-Mission TX 5.7%
Greenville-Anderson-Mauldin SC 5.5%
El Paso TX 5.1%
Milwaukee-Waukesha-West Allis WI 4.9%
Miami-Fort Lauderdale-West Palm Beach FL 4.8%
Portland-Vancouver-Hillsboro OR-WA 4.7%
Omaha-Council Bluffs NE-IA 4.6%

The following table shows the 10 metro areas with the lowest wage escalation from last year. Although BLS’s methodology yields low numbers, this data is directionally correct. Although there is some geographic diversity in these results as well, three of the communities are in California. This trend will likely change dramatically as minimum wage laws take effect.

METRO AREA STATE Annual Wage Escalation
Tulsa OK 0.0%
Charlotte-Concord-Gastonia NC-SC 0.3%
Modesto CA 0.4%
Las Vegas-Henderson-Paradise NV 0.4%
Albany-Schenectady-Troy NY 0.6%
Sacramento-Roseville-Arden-Arcade CA 0.6%
Birmingham-Hoover AL 0.6%
Oxnard-Thousand Oaks-Ventura CA 0.7%
Detroit-Warren-Dearborn MI 0.9%
Portland-South Portland ME 0.9%

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. The following table shows the 10 metro areas with the highest location quotient that have an annual wage escalation below the average of 2.5%. Surprisingly, this includes legacy distribution center markets such as Memphis, Louisville and Chicago.

METRO AREA STATE Annual Wage Escalation
Tulsa OK 0.0%
Charlotte-Concord-Gastonia NC-SC 0.3%
Modesto CA 0.4%
Las Vegas-Henderson-Paradise NV 0.4%
Albany-Schenectady-Troy NY 0.6%
Sacramento-Roseville-Arden-Arcade CA 0.6%
Birmingham-Hoover AL 0.6%
Oxnard-Thousand Oaks-Ventura CA 0.7%
Detroit-Warren-Dearborn MI 0.9%
Portland-South Portland ME 0.9%

The following map includes location quotient and wage escalation data for all 107 metro area with a population greater than 500,000.

Source: BLS, EMSI

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