Rising Compensation in Construction Trades Linked to Local Market Conditions
November 6, 2018 •
Construction activity is one of the major drivers of architectural coatings demand, and U.S. statistical agencies track several indicators of the health of the construction sector. Construction employment is a good proxy for “real” construction activity, since the metric of total employment numbers is not itself subject to inflation (although cost of employment is), with the result being that changes in employment more accurately reflect what is being done at construction sites than do metrics involving the nominal amount spent.
Like most indicators in the construction sector, the past decade is marked by a substantial decline as the housing boom ended in 2007 or so, with total sector employment dropping over 40 percent from the start of 2007 through the start of 2011, while overall construction spending fell over one third during that same time (Figure 1). However, since the 2011 trough, both spending and employment have recovered steadily, although total construction employment is still slightly below peak. Employment among specialty trade contractors, a category which includes painting contractors, shows a similar recovery.
Wages in construction trades have risen steadily, but at a moderate pace. As shown in Figure 2, wages for non-supervisory construction personnel have risen from less than $21.50 at the beginning of 2008 to over $28.00 now. Construction workers have maintained a wage premium over all non-supervisory workers in general of approximately 20 percent during this period. Figure 2 also shows that while specialty trade workers have historically been paid almost identical wages to all construction workers, a small gap in compensation has emerged in the past two years, with construction employees now reporting wages slightly higher than 2 percent above specialty trade workers.
Of course, national averages can mask wide disparities in local construction markets. Construction wages paid in various markets are greatly impacted by local labor supply (particularly in skilled crafts), local wage expectations, the amount of influence of organized labor, etc. Three large states illustrate these disparities. Texas and Arizona, which are fast-growing, “right-to-work” states with significant new construction activity, have significantly different labor market conditions than does Illinois, which has a generally higher cost of living and greater labor union influence, and as a result, Illinois builders must pay above average construction wages.
As shown in Figure 3, Illinois construction wages are significantly higher than the national average, while Texas, after strong wage growth in the past year or so, is close to the average. Arizona hourly construction wages remain more than $3.00 below the national averages. Of course, in large cities, wages can be even higher than the state or national averages. In New York, N.Y., known for its high wages, construction workers, such as specialty contractors, can make upwards of twice the reported national averages, not even accounting for local variations in indirect costs resulting from more restrictive work rules, etc. This illustrates that local labor conditions – which are obviously the most relevant to a specific project – are often masked by reporting of national averages.
Contact ACA’s Allen Irish for more information.