Most HR directors I talk to assume their labor shortage is a compensation problem. Raise wages enough and the candidates will appear. I’ve watched companies follow that logic for years, and the results are predictable: you win a few workers from competitors, you raise everyone’s expectations, and your labor cost goes up without solving the underlying problem.
The actual problem, in most of the markets I work in, is mathematical. There aren’t enough qualified workers in the geographic area to fill the roles at any wage. The pool is exhausted.
There’s a tool economists use to measure this. Most HR teams have never heard of it.
What the Location Quotient Measures
The Location Quotient, or LQ, compares a region’s concentration of a specific occupation to the national average. An LQ of 1.0 means the region has exactly the national share of that occupation. Above 1.0 indicates a surplus. Below 1.0 indicates a shortage.
The data comes directly from the Bureau of Labor Statistics and is publicly available. But most manufacturing HR teams are working from job board traffic and applicant flow, not from labor market data.
Here’s what the LQ tells us about electricians, for example. Wyoming has an LQ of approximately 2.0, meaning it has twice the national concentration of electricians. North Dakota, South Dakota, and Nebraska are similarly high. Meanwhile, Illinois, Pennsylvania, and South Carolina are all below 1.0. The shortage isn’t imaginary in those markets. It’s measurable.
The same analysis applies to production workers, machine operators, welders, and maintenance technicians. In many of the markets where manufacturers are struggling most, the LQ for their target occupations is well below 1.0. The local supply cannot match local demand at any price point.
What to Do With This Information
The LQ creates a clear strategic direction. If your market has a low LQ for the workers you need, the solution is not to recruit harder locally. The solution is to identify high-LQ markets and build a pathway to move workers from there to here.
One of our clients, a contractor building a major data center, needed 80 electricians for a project in South Carolina. The local market had an LQ well below 1.0. We sourced from Wyoming and the Dakotas, where LQs indicated significant surplus. The project was staffed. It stayed staffed.
That’s not a recruitment story. That’s a data story.
Running the Analysis for Your Operation
Before investing in another round of job board spending or another sign-on bonus, it’s worth spending an hour with BLS data. Pull the LQ for your top three job classifications in your MSA. If they’re all below 1.0, you’re not competing poorly. You’re competing in a structurally exhausted market.
That changes the strategy entirely. You stop trying to win a local recruiting competition that cannot be won, and you start thinking about where the workers are and how to bring them to your facility.
Ariel Diaz is CEO and Founder of TalentMovers. talentmovers.com
