Wage Freezes and Cost Squeezes

The pain continues unabated for construction companies and workers. The industry lost another 75,000 employees in January, seasonally adjusted, virtually unchanged from the monthly average of 77,000 over the past 12 months, according to data the Bureau of Labor Statistics (BLS) released on February 5. For the first time, BLS included in its data release information on both "construction workers" and total employment in the construction industry. The former category covers what in other industries BLS calls production or nonsupervisory workers. Construction workers accounted for 4.3 million of the 5.6 million total employment in the industry. In the past year, about 14 percent of both construction and other workers in the industry lost their jobs. Average hourly earnings rose 2.9 percent for construction workers over that span, vs. 2.4 percent for the industry as a whole. The larger rise for construction workers may reflect the second-year raises included in multi-year contracts that some union locals won in the first half of 2008. At that time, many contractors were experiencing record demand and agreed to 4.5 percent or 5 percent increases in wages in both 2008 and 2009 to attract enough skilled workers. Open-shop contractors working on public projects that required payment of local "prevailing wages" or facing worker shortages also raised wages substantially in 2008. However, some locals have recently signed agreements without any current increases. For instance, AGC's Oregon-Columbia Chapter reported, "Our 2009 negotiations with the Northwest Regional Council of Carpenters resulted in wage/benefit freeze," and the AGC of California reported that Arizona, California and Nevada Ironworkers "just agreed to a one-year [contract] extension with wage freeze." Last year, BLS began reporting new producer price indexes (PPIs) for a mix of nonresidential new and repair work performed by various subcontractors. The PPIs for plumbing and roofing contractors rose just 0.3 percent and 0.6 percent, respectively, from December 2008 to December 2009, while the indexes fell 1.3 percent for concrete contractors and 3.1 percent for electrical contractors. These wage freezes and shrinking subcontractors' prices should provide some relief for hard-pressed general contractors. However, the PPIs for completed new nonresidential buildings generally fell as much or more in 2009: -2.4 percent for new schools, -3.1 percent for new offices, and -4.3 percent each for new warehouse and industrial buildings. Over the same period, the PPI for materials used in constructing new nonresidential buildings rose 0.4 percent. Thus, compared to a year earlier, building contractors in December 2009 generally paid more for wages and close to the same for subcontractors and materials, even as their delivered prices fell. For 2010, it appears materials costs will remain flat at best but may start rising again. Labor costs are likely to rise modestly. Subcontractors will continue to hold the line on their pricing. But general contractors will still face a cost squeeze.