Laborers vs. Builders: How Do You Solve A Problem Like Economics
While the construction industry is in crisis due to massive labor shortages (as we’ve reported here http://powertools.hh2.com/home/2017/2/10/labor-shortage-slows-new-construction), one of the solutions may be staring builders in the face: pay and benefits.
From coast to coast, workers are struggling to keep the bills paid. A Miami study, performed by the Workers Defense Project and the Partnership for Working Families, states that 44 percent of workers struggle every month to pay the necessities: rent, utilities and groceries. On the other side of the country, California reports that, adjusted for inflation, workers are earning 25% less today than they were in 1990.
This is in the face of a housing market that is doing better than ever. Developer fees and builder earnings now make up a greater share (18 percent) than wages and benefits (15 percent). Profits have grown 50 percent faster than material or labor.
An interesting sidenote: productivity is down as well. It takes 13 percent more workers to build housing today than it did 20 years ago, according to a study from Smart Cities Prevail.
To further complicate matters, the median wage of California construction workers is $35,000. These workers rely on Medicaid at nearly twice the national average, and forty percent qualify for government-subsidized housing. In other words, construction profits are up, but taxpayers are paying for construction company’s workforce.
This problem is mirrored in Miami, where the median wage is $14 per hour ($29,000 per year), and the workers, despite being unionized, haven’t been able to negotiate up to a living wage.
Pure capitalist economic theory states that all of this is connected, of course, and will be corrected by the free market: when something is in high demand (workers) then wages and benefits will rise to meet the need; the economic philosopher Adam Smith referred to this as the “invisible hand”.
The study in California says that raising wages won’t increase overall project costs. Their research shows that higher wages draw in higher-skilled workers who will, in turn, increase productivity.
Of course, the problem is more complicated than a simple case of supply and demand. Other forces are in play as well. The workforce is atypical; while employer-offered healthcare is relatively rare, a low percentage of workers actually take advantage of it when it’s presented to them. Many workers are considered contractors, rather than regular employees, (often a form of payroll fraud) and cases have been proven in Miami where contractors were not even allowed water from the company’s cooler because they weren’t employees.
There is no easy answer. The country is still rebooting after a massive economic crisis. But with labor shortages looming, and workers feeling underpaid and mistreated, something’s gotta give.