A labor surplus area is an economic region in which the number of prospective—and qualified—employees for positions with a company or companies exceeds the number of jobs available. This state of affairs can be an important component in business success, for businesses operating in labor surplus areas can typically find the personnel they need to conduct their operations at lower payroll expense than can businesses that may have to offer more generous compensation packages to secure even mediocre employees. "Although many factors relating to labor are essential, with respect to location decisions, the primary factor is the availability of labor in the region," confirmed Howard Weiss and Mark Gershon in Production and Operations Management. "Typically, a company wants to see a high ratio between the number of potential employees and the number of jobs available. The reason for this is twofold. First, this gives the company a large pool of applicants to screen, allowing the company to be selective in hiring those it feels will best fits its needs, which leads to a productive work force. In addition, if there is competition for the positions due to the large labor pool, there will be less chance of the company's losing workers. Second, typically, a company does not want a region to be dependent on it. If most workers in the region depend on Company X and the company then moves or goes out of business, the entire region will be affected adversely, which reflects poorly on the company."
Business experts note, however, that a true labor surplus does not truly exist unless there exists a surplus of prospective employees who possess the necessary skills, background, and experience to handle the responsibilities of the jobs that need to be filled. While some companies engage in industries that require only semiskilled or unskilled labor, others—such as high technology companies—rely on a highly educated and skilled work force. Such a business may be located in a region in which large numbers of people are looking for employment, but unless those people also have the necessary training and skills to meet the company's needs, the business is not operating in a true labor surplus environment.
Many analysts and business consultants point out that the labor availability disparities that are evident in certain industries will continue to exist—and possibly widen—over the next few years. Some manufacturing and technology sectors, for example, are expected to operate with periodic shortages of labor talent for the next several years; this partially accounts for the high salary levels that skilled practitioners in these areas can currently command. But other geographic and industry sectors are expected to be able to take advantage of labor surpluses, and many observers contend that the current tight labor market that some industries are experiencing will ease in the coming years. "The labor force will grow in number for the next few years," predicted Anne Fisher in Fortune. "More people will be more highly educated than ever before. Market forces will kick in—albeit gradually—and guide people toward the growing number of high-skilled jobs that pay above-average wages. And, perhaps most important, employers will wake up" and recognize the importance of training their current work force. Fisher cited the growing number of "retirement-age" people staying in the work force, the dramatic growth in continuing education among adults, and the computer-literate character of today's youth as evidence of possible future labor surpluses in high-skilled industry areas.