What is the benefit of having a Labor Force & Unemployment Rate analysis in a business plan for Lights On Electrical, Inc.?

Every business in the Electrical Contractor like Lights On Electrical, Inc. is almost completely dependent on its ability to hire competent labor at a reasonable and competitive rate in order to be able to conduct its operations and grow their business. The three basic required inputs for any business enterprise to operate are people, process and technology. For every business like Lights On Electrical, Inc., no matter where in the world you are located, your ability to recruit and maintain a staff that will help you deliver the product or service to your customers is key.

The Labor force is the total number of folks in the target market that are employed and are looking for work - that means it is the total pool of labor from where you will have to hire your talent. Unemployment rate of course is the rate of folks from the total working population, who want to work out are not able to find work. Both these employment metrics are critical to any business like Lights On Electrical, Inc. operating in Cuyahoga.

What if the labor force in the target market like Cuyahoga, where the business is located, has been declining in size?

For businesses like Lights On Electrical, Inc., access to the labor pool is very important. If the total labor force in the target market where the business is located is declining then it definitely has implications for businesses. It means that owners like Andy Powell are going to have a tougher time finding and hiring the staff that is needed to make sure that Lights On Electrical, Inc. runs properly. Most small businesses tend to be located in or close to their target markets and hence we don't make the distinction between the target market for the business and the local market where the business has its office, production facilities and staff. In the event your business is regional or national in nature, the market that you would study for Labor force & Unemployment rate and how it affects your ability to hire will of course be the local area where your production is based. You would still have to study the same labor conditions in your target market as well since it would affect your understanding of your target market economic conditions.

Thus an important item to understand about the target market having a declining labor force is that it gives you an idea into what is happening demographically with the target market. If we were to see a declining labor force along with a declining population, it would indicate that over time folks have been migrating away from the target market perhaps because employers and jobs have left, or taxes and housing costs are too high and folks can't afford to live there anymore. On the other hand if the population is the same or growing but the labor force is declining it could mean that folks are retiring and the community is turning into more of a retiree community. All this of course has implications for a business like Lights On Electrical, Inc. looking to sell its products and services in that market.

A growing labor force on the other hand is indicative of a growing target market and bodes well for a business like Lights On Electrical, Inc. The rationale here is very simple - a growing labor force indicates that there will be more people with buying power and disposable income in the target market. It also indicates that businesses will have less problems looking for workers since the pool of labor in the market from where the business is hiring is growing (again assuming that the business like most small businesses has its production facilities located in the same target area as its clients.

What about the unemployment rate in Cuyahoga? What does it mean for a business like Lights On Electrical, Inc.?

As is well known, the unemployment rate reflects the official count of folks who are unemployed and are looking for work. The computation of unemployment is not a perfect science since once folks stop receiving unemployment benefits they are no longer counted amongst the unemployed. This of course does not mean that they have been able to find employment - it simply means that they are no longer being counted amongst the total unemployed. Also important to note is that the unemployment number does not reflect the under-employed who are working in part-time jobs but are looking for full time employment.

Still, given all its limitations, the unemployment rate is a decent lagging indicator of the general health of the local economy. A low unemployment rate for example indicates that the local economy may be strong especially if the statewide and national unemployment rates are higher. It may indicate a wider and broader economic base which is able to withstand the shocks of a slowdown much better. It is very important to watch for swings in the unemployment rate and labor force over periods of time. Large swings in the unemployment rate could indicate that the local economy is overly dependent on one employer or industry. Usually in cases like that you will see that when the large local employer leaves, jobs vanish with them and vice versa.

What is the length of time for which the Labor force and Unemployment Rate should be analyzed for Cuyahoga?

We recommend that business owners like Andy Powell analyze and present at least ten years worth of data on the Labor force and the unemployment rate in the business plan for Lights On Electrical, Inc.. A decade gives the reader of the business plan a very good idea of how a local target market like Cuyahoga has fared during different stages of the business cycle.

When doing your business plan for a Electrical Contractor you may choose to take a look at the Labor force and unemployment rate data for a smaller time frame like five years, but there is always a possibility that the resulting analysis may be skewed especially if there were no slow downs or recessions during that period. We feel that it is very important that you analyze how the local market has done in terms of labor force and unemployment during at least one period of economic slowdown, since that is where we can truly find out the resilience of the local market place and its ability to bounce back and support employment.

Unemployment rate is a lagging indicator which means that it starts turning up and down only after the economy beings to accelerate or slow down respectively. What has been noticed by many economists is that most recoveries from recessions in the United States have tended to be jobless recoveries, characterized by increase in the business sentiment and activity but not necessarily a uptick in the employment rate. In fact employment usually seems to be the last thing that moves up during the accelerations phase in an economic upturn.

Quick Links:

1. Go to the Corresponding Template section for this industry.
2. Go to the Corresponding Business Plan section for this industry.