Smart Business: To Get Better Help, Pay More
November 1, 2007
The January 1990 issue of Plumbing & Mechanical magazine had a cover story titled “The Manpower Crisis,” written by me. It featured interviews with apprenticeship recruiters and other industry experts addressing a skilled labor shortage that had already started to rear its head. Demographic and social trends indicated the problem would only worsen in years to come.
It sure did.
In the ensuing 17 years, no other issue has pressed so hard upon contractors as the tight market for skilled labor. I have since learned it spans every construction trade, not just plumbing and HVAC. The subject comes up over and over in conversations with contractors.
These conversations usually go something like this:
Contractor: “It’s so hard to find good people.”
Me: “What do you pay them?”
“Oh, we pay them the going rate.”
Underwhelming PayThe going rate for trade workers in most markets used to be determined by prevailing union wages, and that’s still the case for Davis-Bacon jobs. Most projects are not government-subsidized, however, so nowadays when contractors talk about paying the “going rate,” mostly it’s the nonunion rate for their area. A company called PAS, Inc. (www.pas1.com) offers the most comprehensive tracking I know of pertaining to nonunion wage rates for 30 trade categories. Most average between $12-$18 an hour, with the skilled trades occupying the higher rungs. Pay scales do of course vary from region to region and between urban and rural markets, and you can add another five or six bucks an hour worth of benefits to the averages.
Nonetheless, the data shows that the vast majority of U.S. trade workers, even those with skills honed through four- and five-year apprenticeship programs, seldom earn more than $40,000-50,000 a year working full-time. Many earn much less, and most benefit packages are underwhelming as well. Overtime premium pay can boost income considerably, but if you’re a young kid looking at a trade career, you’d be wise to view overtime as a bonus rather than something to count on for mortgage payments. Besides, a steady diet of 50- and 60-hour work weeks leads to burnout. It’s one reason why you see so many trade workers switching careers before they reach middle age.
The going rate in the trades isn’t something to get real excited about. Young people can earn about the same amount doing less grueling work tending bar or waiting tables in a halfway decent restaurant, or in any number of government jobs. This is one reason why so many stay away from the trades.
Econ 101 RescindedIn watching this labor shortage unfold over the last couple of decades, I’m puzzled as to why the marketplace hasn’t responded as it was predicted to do in the Economics 101 course I took way back in my college days. The textbook said that where labor shortages arise, wages usually go up to entice more people to that field.
Since about the late 1990s, trade wages have been rising a little faster than inflation–in the 3-5 percent range annually according to the reports I’ve seen–but that’s not enough upsurge to make much difference in supply. One reason is that trade wages actually declined in inflation-adjusted dollars from about the late 1970s through the mid-‘90s. That’s about when a big swing took place from a predominantly union to predominantly nonunion labor force in many trades. Even with respectable pay increases over the last 10 years or so, the buying power of today’s trade wages doesn’t equal that of earlier decades.
With so many contractors tormented by the scarcity of skilled labor, compensation for those jobs ought to be rising a lot faster than it has. Why hasn’t it?
Leapfrog The Going RatePeople who undervalue themselves will surely undervalue the people who work for them. That’s why it’s unthinkable for many contractors to shatter the going rate for labor in an area.
Usually you can find a few contractors willing to pay a buck or two more an hour when they get really desperate for help. Their pitch appeals to legions of mediocrities who keep hopping from shop to shop for that extra buck an hour. Then work slows down, they get laid off, and they’re back to taking the first job they can find at the going rate.
Ask yourself, how much is the best worker you know worth, compared to all the mediocrities you’ve employed over the years? Think of increased productivity. Think of jobs completed on time with fewer hassles. Think of eliminating rework that has cost you a bundle over the years. Think of happy customers and endless referrals rather than a litany of complaints. Think of some of the mopes you’ve employed over the years that you wouldn’t trust to work on a project for your own home, but whom you’ve inflicted on the public at-large.
Don’t you think someone who can deliver you to the promised land of top-notch professionalism might be worth $5 more per hour. Maybe even $10, or $20?
Or, can you not even conceive of paying that much to someone who is, after all, just a trade worker? Nobody bats an eye when someone who wears a tie to work and pulls down a six-figure salary. But if someone who gets his hands dirty starts approaching that level of income–as is the case with union labor in a handful of skilled trades–the widespread perception is that person is “overpaid.”
Now the big question becomes, where do you find people worth five, 10 or 20 bucks an hour more than the run-of-the-mill applicants you get every time you run a classified ad? I know this is going to get me into hot water with a lot of you, but the truth in most cases is that you’ll have to steal them from your competitors.
Face reality: The best people probably already have a job. They are the last ones to get fired or laid off. And they’re probably paid at least a little more than the going rate. If you want them, you’re going to have to pay top dollar to recruit them away from their present employers. You’ll also need to treat them like human beings rather than mere labor units.
MISGUIDED ETHICA misguided ethic permeates many trades that considers it unethical to “steal” a competitor’s employee. That attitude is full of holes.
The term “stealing” an employee suggests ownership, but ever since President Lincoln’s Emancipation Proclamation in 1863, nobody in this country has held ownership rights over any other human being. We are all free agents, and if you have the wherewithal to treat people better than another employer, you have every right to make them an offer.
I understand that most of you are buddies with some local competitors, and I’m not suggesting you stab your friends in the back. If you decide that a personal relationship is more important than your business interest, that’s OK. Just understand that this does not make it an ethical or moral issue.
In most cases, employers invoke friendship, ethics or morality to disguise the real reason they resist hiring people away from competitors. It’s the fear that someone may do the same to him or her. Nobody wants to get into an employee bidding war, so an unspoken rule evolves that holds it to be unethical to go after a competitor’s people.
An odd thing about this rule is that it only seems to apply to direct competitors. If a contractor hires someone away from a fellow contractor in a different market, nobody looks at it as doing anything wrong. It’s just considered somehow wrong to hire someone away from a company that’s chasing the same work as you do. Can anyone find any logic in this?
The way to ensure that nobody does it to you is simply to treat your employees better than your competitors. To do that, you may need to shatter the going rate.
I believe that the laws of economics I was taught way back in Econ 101 still apply. If employing top-notch workers is important to your business, pay them whatever it takes to come to work for you. Boost your prices accordingly. If they’re worth what you need to pay them, you’ll make up the difference with greater productivity and customer satisfaction.