Are Low Unemployment Rates in Middle and East Tennessee An Opportunity for Memphis?

By John Gnuschke

Most counties in Middle and portions of East Tennessee are nearing full employment. Only the frictionally unemployed (those waiting to take a job) or those unemployed for structural reasons are available to fill new jobs.  Employment costs rise in direct relation to the severity and duration of the labor shortage.  Employers can expect employee wage and non-wage costs and turnover to increase as the competition for employees heats up.  Meanwhile, areas with higher unemployment such as Memphis may have opportunities for growth associated with their available labor pool?

While workers benefit from abundant job opportunities and rising wages, employers find it increasingly difficult to find qualified local labor.  Employers seeking workers are forced to do one of two things.  First, they may be forced to spend more money on seeking workers from other areas. This is particularly true when seeking highly educated professional level employees.  Expanding the search for employees increases the cost of labor, reduces profits and complicates regional issues such as commuting patterns and urban sprawl. Second, employers may try to attract employees from other local employers -- a competition for employees that drives up wages and employment costs for all employers.  Either way, tight labor markets drive up employment costs—a major factor for many employers. 

Employers faced with the realities of tight local labor markets may offset the rising labor costs with labor saving capital investments. But in the end, tight labor markets and increasing employment costs will decrease the attractiveness of local areas for employers—particularly those seeking large numbers of workers or highly skilled workers.

It is true that as unemployment rates decline, some people who have dropped out of the labor force will begin to seek work. These workers tend to be the least well-prepared and least productive workers in the labor pool.  But, prolonged low unemployment rates will eventually exhaust the availability of even poorly prepared workers.  Areas with excess labor resources like Memphis should view them as a valuable asset when recruiting new employers.

John Gnuschke is the Director of Sparks Bureau of Business and Economic Research at the University of Memphis.