Construction execs are missing the obvious explanation for their labor shortage.

Construction Executives Think Americans Don’t Want Jobs Building Things. They Should Pay Them More!

Construction Executives Think Americans Don’t Want Jobs Building Things. They Should Pay Them More!

Moneybox
A blog about business and economics.
March 30 2017 2:49 PM

There’s No Such Thing as a Job Americans Won’t Do

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If companies want more Americans to work in construction, they need to raise wages.

John Moore/Getty Images

“These jobs, Americans don't want," Gene Myers, the CEO of Thrive Home Builders, told CNBC real estate reporter Diana Olick earlier this week, in a well-done piece on a labor shortage that is contributing to a construction and housing shortfall in Denver.

“Construction is ground zero in the worker shortage,” the Wall Street Journal editorial page chimed in on Thursday. Indeed, according to the Bureau of Labor Statistics, there are 150,000 unfilled construction jobs in the United States. And as the Journal’s editorialists note, “a January survey by the Associated General Contractors of America found that 73 percent of firms had a hard-time finding qualified workers.”

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Why? Many people were flushed out of the home construction industry when it collapsed last decade, and went on to find other work. Many of the undocumented immigrants who filled the posts have left the country, or, in some instances, have been deported. The demographic that does this difficult physical work is aging—as the Journal writes, “the average age of construction equipment operators and highway maintenance workers is 46.” And, gee, it seems Americans just don’t want to get their hands calloused and risk injury pouring foundations and erecting frames.

What’s mystifying here is the fact that capitalist homebuilders and their cheerleaders at the Journal are, well, mystified over why Americans don’t seem to want to work construction. There’s a simple reason why Americans aren’t filling construction jobs—and the construction industry appears to be missing it.

Free-market types will tell you that there’s no such thing as a shortage of a commodity—of energy, of food, and, theoretically, of labor. Rather, there is only a shortage of the proper incentives, people willing to pay the appropriate prices or to send the signals that a commercial endeavor is worth undertaking. If you’re only willing to pay $2 for a gallon of gas, there will be a crippling shortage, because some producers won’t be able to afford to provide it. If you’re willing to pay $4 per gallon, the market will magically produce a bounteous surplus.

People in real estate generally understand the importance of market prices and incentives. You don’t price a new condo at $200,000 if the ones across the street of the same size is priced at $400,000. If you want to move a house quickly, you slash the prices, or throw in a granite countertop or a car—anything to make the transaction more financially appealing to the person on the other side.

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And yet the market sharpies collectively are throwing up their hands over the construction labor shortage instead of homing in on the obvious solution: Pay people more—a lot more if need be. The executives Olick interviewed didn’t mention pay, although she did note that “wages in the residential building industry are growing at twice the rate of wages in the overall economy.” The Journal took a supply-side approach to a solution: Go easier on immigrants, legal and illegal, so that business will have a larger supply of people willing to do the work at the wages on offer.

Why do businesses not understand the solution to the problem? One reason has to do with a misreading of the economic situation.

There is one narrative about jobs growth. The post-crisis expansion is approaching its eighth anniversary. We have had 77 straight months of payroll job growth. The unemployment rate is 4.8 percent. And according to the Bureau of Labor Statistics, there were 5.6 million jobs open in the U.S. at the end of January. The conclusion: if you have a sense of urgency about filling a job—with an American or a foreigner—you better come heavy with above-market pay and benefits. Otherwise, good luck.

There is a counternarrative, however, the widespread “American carnage” of President Trump’s Inaugural address in which millions of people, especially working-class men, are underemployed and trapped in low-wage service jobs from which they are desperate to escape. Trump notes, ludicrously, that 94 million people are not in the labor force (his number includes kids, students, stay-at-home parents, and old people). The unemployment rate, at 2.4 percent for college graduates, is 5 percent for those with only a high-school education. And many regions remain economically depressed—Hillbilly Elegy and all that. The conclusion: It should be easy to hire people for service jobs at whatever wages you want to pay.

The second view is common among many employers. And it is bound up with a more generalized sociopathy about wages and pay that took root during the Great Recession. Companies slashed payroll to survive and then took extraordinary measures to keep payroll costs down even as the economy expanded. For several years, American workers didn’t get a raise, on average, and they kept showing up for work and applying for jobs. And these low wages were built into the typical company’s business model. So why should an employer bother to raise wages aggressively now? If it becomes an article of faith that you never have to raise wages, it is easy to conclude that the reason you can’t hire is that Americans aren’t willing to do the job.

But that’s not how the world, or business, works. There’s no such thing as a job an American won’t do. There are such things as jobs that Americans in your geographic area won’t do at the conditions on which you are offering them. At this point in the economic cycle, building homes in Denver now seems to be one of them.

When regional labor markets are tight, you have to send the price signal to potential workers that it will be worth their while to leave their current home or position in order to apply—that the job will pay well, that it will carry benefits, that if you get hurt or sick you’ll have good insurance, that there might be job security and prospects for training and development. That price might be closer to $100,000 than it is to $50,000. But that’s where we are in the economic cycle. And if builders prefer not to pay up to attract workers and are reluctant to try to charge more for their end products, they’ll muddle through at low volumes. That, alas, is also where we are.