With construction spending continuing to rise toward pre-recession peaks and worker shortages growing for both open shop and union contractors, compensation of craft trades has seen a significant bump—the largest in nearly three decades for some firms.
“It’s a great time to be a craft person,” says Jeff Robinson, president of Personnel Administrative Services (PAS), a Michigan open-shop pay research firm.
“For workers, this is a seller’s market, and they can be expected to hold out for higher wages,” says John Finch, president of PBG Builders, a nonunion Nashville area building contractor. “If I don’t pay them, my competition will.” Adds the CFO of a South Carolina electrical contractor: “Quite simply, we don’t see an end in sight.”
In its 2015 wage and benefits survey, PAS reported a startling 6.4% jump in average base wage in the U.S. since mid 2014—the highest percentage increase seen since 1986. By comparison, it noted annual increases of 3.9% in 2014, 2.7% in 2013 and 1.2% in 2012.
The rise in craft compensation coincides with increased construction spending in the U.S., which posted a 13.7% year-over-year gain in August, according to U.S. Census Bureau data. Residential construction put in place in August was up 16.4% year over year, says Ken Simonson, Associated General Contractors of America’s chief economist.
With construction activity on the rise, unemployment is dropping sharply. The Census Bureau said the rate for construction workers fell to 5.5% in September, the lowest for the month since 2001.
Also last month, AGC added that, in its latest worker shortage story, 86% of contractors report trouble filling available craft positions—up from 81% in 2013. The survey cited several contributing factors, including an aging workforce and a reduced pool of available construction labor since recession layoffs.
Carpenters were toughest to find, with 73% of firms reporting difficulties, while salaried professionals also were in short supply, noted by 55% of respondents for project managers and 43% for estimators.
Robert V. Barnes, CEO of Dee Brown Inc., a large non-union commercial stone and masonry installer in Dallas, has seen the worker need fuel wage inflation of about 20% over the past 18 months. “It is a simple supply and demand equation,” he says. Barnes adds that as owners and regulators get tougher on immigration verification rules, “the greater the shortage will become and in turn the higher the wages of the available workforce will go.”
David Little, chief business development officer at Colorado contractor Gallegos Corp., notes that “for those who are chasing a paycheck, we have seen guys jump the fence for 50 cents more an hour.” He adds that “with the exodus from the industry, those that are good are demanding top rates.”
New York's Changing Market
The boom in New York City’s multi-unit residential construction market has broadened competition in traditional union areas to more open shop firms. Some studies show that sector is at least 50% non-union. “Every major developer is doing open shop,” says Lance Franklin, chief operating officer of Manhattan-based Triton Construction, which claims $1 billion in area consruction backlog. “We have hired union trades and will continue to when the economics make sense,” he says.
William Cote, CEO of nonunion building contractor Hudson-Meridian, also Manhattan-based, says his subcontractors point to labor cost escalation of 10 to 15%, with particular shortages in HVAC, mechanical and electrical trades. The firm’s gain of larger projects in Brooklyn and Manhattan also is fueling shortages of project managers and superintendents. “Headhunters are the only ones making money now,” he says, adding that he has passed on some bids because “we’re pretty stretched.”
Lou Coletti, CEO of the city’s union Building Trades Employers Assocation, says that “open shop firms can’t build as quickly and efficiently as organized labor, but they are closing the gap.” He notes no shortage in union workers, although they’re “at capacity.” According to Coletti, most major trade pacts such as plumbers, electricians and lathers won’t be negotiated until mid-2016, although a few so far have averaged increases of 2 to 3%.
But tension this year between the carpenters’ union and an employer group, The Cement League, is not a hopeful sign. The union, whose agreement expired in June, struck as many as 30 jobsites in the city for two days. These included some with no-strike clauses under a project labor agreement, such as the mammoth Hudson Yards development in Manhattan. The workers returned to work under a court order, but have yet to reach agreement with employers, one industry official says. The two sides “are pretty far apart,” he says, also claiming that the discord has prompted some construction management firms “to disengage” from contracts with the union.
A union spokeswoman did not respond to repeated requests for comment.
Even so, the building trades’ clout in New York City has made them central to the future of the city’s 421-a tax abatement program for developers—a key residential building catalyst that includes affordable housing incentives.
Whether and how the program survives beyond a short-term extension through December now hinges on talks between city building trades chief Gary LaBarbera and the Real Estate Board of New York over union wage-rate guarantees on projects. A spokesman for LaBarbera declined comment, but published reports say 421-a could end if there is no deal by Jan. 15.