Construction Squeeze Takes Toll As Wage Hikes Flatten Nationwide
Construction wages and benefits have taken a sharp downturn this year as companies have seen job opportunities dry up nationwide. After nearly a decade of steady increases, compensation has flattened on average as many employers have frozen or decreased wages. Analysts hold a mixed view on the trend, noting the situation isn’t alarming today, but could worsen in the future. While the recession has eased cost-of-living pressures on wages, the health-care debate is raising concerns that employers may face considerable financial hurdles further out.
Both open-shop and union contractors are seeing similar statistics. This year, wage increases are expected to average 2% among all open-shop contractors, according to the 2009 Merit Shop Wage and Benefit Survey compiled by Personnel Administration Services, a Saline, Mich.-based compensation research firm. Roughly one-third of respondents did not give an increase. Among those companies that raised wages, increases averaged 2.9%, with East Coast employers slightly outpacing those on the West Coast.
PAS President Jeffrey Robinson says he’s not alarmed by the results, given the economic climate. Many companies are offering wage increases even though competition for jobs is tight. Construction unemployment stood at 16.5% in August, according to the Bureau of Labor Statistics. The Consumer Price Index dropped 1.5% between August 2008 and August 2009, driven primarily by the severe drop in energy prices. “We’re not seeing cost-of-living increases, so a flattening of wages isn’t having the same impact it might otherwise have,” he adds.
While some hourly employees aren’t seeing paychecks get bigger, Robinson says salaried staff is taking less of a hit. Around 15% of companies have frozen executive-level salaries, and 20% have not increased salaries at the middle-management levels, he says.
“Wages going flat doesn’t worry me too much,” Robinson says. “We’ve had some pretty good years and we were bound to see a correction. It would worry me if we saw that happen to a larger degree at the executive and professional levels. That would mean companies don’t see a lot of work out there, and they are willing to let top talent go. If we see that, we’re in trouble.”
Union settlements are falling in line with the merit-shop market, according to other research. A September survey of wages and benefits by the Construction Labor Research Council, Washington, D.C., shows first-year increases have averaged 2.7% since the beginning of 2009. About 10% of reported settlements resulted in freezes or reductions. In light of the unstable economy, contract durations have shortened significantly with nearly half signed for only one year, data show. CLRC Executive Director Robert Gasperow says although settlements saw a slight increase, “a disproportionate amount went to health, welfare and pensions funds.”
Concerns are mounting over future health-care costs, fueled by the continuing debate over health-care reform on Capitol Hill. Both the Associated Builders and Contractors (ABC) and the Associated General Contractors (AGC) have come out against a proposal that would mandate all employers with an annual payroll of $500,000 or more provide health-insurance coverage for employees. Those that don’t cover workers would face a penalty of up to 8%, according to that plan.
Tamika Carter, AGC’s associate director of construction human resources, predicts some companies would have to cut back on fringes, and possibly wages, to compensate for increased costs brought on by a health-care mandate. “A lot of firms use fringe benefits such as paid sick leave or vacation as tools for recruiting top talent,” she adds. “If companies are required to provide health care for all employees, the money to cover that will have to come from somewhere.”
Ellis Hefner, chief financial officer of R.R. Dawson Bridge Co., Lexington, Ky., and chair of AGC’s health-care insurance task force, sees firsthand the need to consider ways to bring down health-care costs, but he is concerned about the current proposals in Congress.
In order to keep premiums flat, R.R. Dawson had to increase its health insurance deductible rates this year, raising them from $500 to $1,500 per person and from $1,500 to $4,500 per family. Although he’d like to avoid such increases, Hefner says he doubts the proposed health-care plan will help. “We provide coverage already, so a mandate wouldn’t affect us. But it could affect our subcontractors,” he adds. “That would certainly be a detriment to them and to us.”
Hefner also eschews the idea of a public option, noting it could have a negative impact on his existing coverage and affect employee retention. “If a government plan came in, I’m not sure if my health-care provider would cut corners to bring costs down in order to compete,” he says. “We provide good health-care coverage because we want to keep a good and stable workforce. I don’t want to jeopardize that.”