Where Are Wages Headed?

From Ken Simonson--AGCA Economist

Reposted from AGCA News & Views April 30, 2013

Simonson Says: Where Are Wages Headed?
Construction labor costs are rising, after years of little movement. The Bureau of Labor Statistics reported today that compensation (wages and salaries, benefits, and required employer payments such as unemployment and worker’s compensation) for all employees in the construction industry increased by an average of 2.0 percent from the first quarter of 2012 to the first quarter of 2013. While mild compared with the 3-6 percent annual gains from 1998 to 2008, it was the fastest annual increase since December 2008.

The actual increase for most firms was probably even greater. That is because the largest employment gains in the past year were in residential construction, where the average pay is less than in nonresidential construction. Thus, it is likely that both residential and nonresidential contractors increased their payments for each worker by more than 2 percent, yet the average rose more slowly because a larger share of workers than a year ago was paid less than the previous average.

The pickup in construction compensation contrasts with a small deceleration in overall private sector compensation. That figure slowed to 1.7 percent in the latest four quarters, the smallest year-over-year change in three years.

Wages and salaries in construction increased 1.7 percent, less rapidly than other forms of compensation. The data does not show the increase specifically in benefits or mandatory employer payments, but it is likely that both categories have been rising, as employers pay more for pension contributions, health insurance and worker’s comp in a tightening insurance market.

Construction employers should probably steel themselves for further acceleration in compensation costs. Although the industry’s unemployment rate in March (14.7 percent, not seasonally adjusted) was still nearly double the all-industry rate (7.6 percent), there has been a huge drop in the number of unemployed former construction workers still looking for work—half a million in the past two years alone. Meanwhile, the pace of hiring in construction now exceeds that in the overall economy. The industry added more than 300,000 workers to payrolls over those two years and is on pace to add that many in the next 12 months. To do so, contractors are likely to starting raising wages and benefits more steeply.

By the end of 2013, compensation in construction could easily be 3 percent higher than in December 2012. Employers should expect increases of as much as 4 percent in 2014, assuming demand for construction continues to grow.

In some states and crafts, compensation increases will be much larger, as companies pay bonuses and overtime to attract workers and get projects completed. AGC has already received a few reports of firms being unable to find the workers they need.

What are you encountering? Please share your recent experiences with seeking, hiring or losing workers with Ken Simonson at simonsonk@agc.org.