Metro areas with the highest and lowest wage inflation

As labor markets continue to improve across the U.S., wage inflation is inevitable and can greatly impact site selection decisions as well as the overall profitability of companies. Finding quality workers at all levels of employment is the driving force behind many corporate site selection studies. As job postings go unfilled, there is no choice but to increase wages to attract talent. To identify labor markets with the highest and lowest wage inflation, Site Selectin Group analyzed 59 metro areas in the United States with populations greater than 1 million to compare mean annual wage inflation between 2013 and 2014.

High demand industry clusters can create higher wage inflation

Metro areas dominated by certain high demand industry clusters such as the technology and energy sectors will often see the greatest inflation. It is not surprising that tech markets such as San Jose, Calif., Boston, San Francisco and Portland had some of the highest wage inflation in the U.S.  San Jose took the top spot with 5.75% increase in mean annual wages. Boston and Portland increased by approximately 2.5%. With the continued growth of the technology sector, wage inflation is likely to continue for the next few years.

Similarly, oil and gas related energy companies that traditionally pay top wages for engineering and field workers can greatly impact a labor market. As the energy sector peaked between 2013 and 2014, wage inflation in metro areas with a heavy concentration in the energy sector such as Houston and Oklahoma City was high. Houston increased by 2.01% and Oklahoma City by 1.64%. 

Low cost, higher growth metro areas incur wage inflation

Another noticeable trend is wage increases in some of the traditional lower cost metro areas. Charlotte, N.C., Tampa, Fla., and Orlando, Fla., are prime examples of markets where economic development efforts have successfully attracted new projects and the expansion of existing employers that potentially has caused labor rates to escalate. Charlotte increased by 3.14%, Tampa by 2.6% and Orlando by 2.03% indicating an upward trend that is likely to continue.  

Some metro areas had minimal wage inflation

Surprisingly, there were several metro areas that are typically targeted in the site selection process that incurred minimal increases in wages. Las Vegas, Tucson, Phoenix and Louisville, Ky., all has less than 0.5% wage inflation. The low wage inflation is likely due to the lingering effects of the recession and extremely depressed housing market in these metro areas.

Wage inflation by metro area

The following table outlines the mean annual wage inflation for 59 metro areas with a population greater than 1 million.

Source: Bureau of Labor & Statistics, Nielson

Higher wage inflation forecasted for the next few years

The increase in wages between 2013 and 2014 is moderate compared the increases that the U.S. is likely to incur over the next couple of years as the unemployment rate continues to drop, demand for quality workers increases and economic development efforts create corporate relocations. Site selection decisions are going to be greatly influenced as companies seek to control operating costs and increase profitability. It is critical that companies closely monitor wages to ensure they are making long-term location decisions.