Economics - Talent Brings Companies?

A local head of an organization who attempts to attract businesses to Richmond was quoted in the newspaper as saying that despite several of our corporations closing operations, Richmond would be able to replace those companies because of the talent we now have that is out of work. In essence, that our increased supply of skilled labor would draw companies here to Richmond. Does this make sense or is it just the politics of the position that is talking?

In some ways, the theory does hold water. As a company closes its doors, other companies may see an opportunity, a void in the local market. If a company acts quickly enough, it could scoop up many of the recently laid off workers and have labor that would require less training than if starting from scratch. That happened here in a small scale not long ago when Wachovia bolted for St. Louis. Edelman Financial expanded from its Northern Virginia location and hired Wachovia employees who fit their corporate profile and who had decided not to move to St. Louis with the company. Clearly they saw an opening and talent available.

The problem with the theory is twofold. First of all, Edelman did not hire all of the displaced workers, I imagine it wasn't even close. Supply may have an impact on demand as the increased supply, in this case labor, can be purchased at a lower cost (wage). Supply, however, does not simply create demand. There must be some pricing pressure involved. The second is the timing of the statement. The statement may have made more sense two years ago. Currently, however, Richmond is not alone in having talent available in the job market. National demand for labor is dropping and shows no signs of picking up yet. To be enticing to companies, which there are few of who are looking for workers in bulk, the price (wage) may have to be dropped significantly, meaning these displaced workers would need to settle for significantly less than they were making. Even this has it problems as employers are fully aware that hiring someone at a $50,000 annual salary who was making $70,000 may be a short term proposition. That employee will be watching for the first opportunity to jump back to his or her previous earnings. Companies generally try to avoid hiring salaried employees for the short-term due to the sunken costs.

So, while the thought of "if you have it, they will come" is a nice rosy picture that someone in an organization charged with attracting businesses to our community might say, in these times, it's just talk. Richmond has been excellent in being recession proof in the times before, but this one appears too deep and too wide and we will have to take some lumps with the rest of the country.