July 14, 2017
The NYT shows us that the skills shortage is real in an interview with Sarah M. Smith, the owner of a roofing company in Nebraska. In the interview, Ms. Smith explains why she needs foreign workers, on H2-B visas, since she is unable to get native born workers or greencard holders for the $17 an hour she is offering.
Ms. Smith explains:
“We have offered the $17-an-hour wage because it is the prevailing wage determination for this type of work, according to the United States Department of Labor. We do offer incentives and bonuses above that. And just to note, Nebraska’s minimum wage is $9 an hour.”
She is then asked why, if she can’t find enough workers, she doesn’t offer a higher wage. Ms. Smith responds:
“In response to the article, I got an email that said if we were to offer $35 an hour with health care benefits, we would definitely get people to apply; it said people who were highly qualified applicants with years of experience would probably line up at our door.
“My response is: We would love to be able to offer $35 an hour as starting pay, but are you in turn willing to pay premium prices for your next roof replacement? A lot of customers we get through online lead services like Thumbtack are people looking for the best deal. They want to collect proposals from four to five businesses and most of the time choose the cheapest one.
“We want to compensate our employees fairly for the work they do and the risk they take, but we wouldn’t be able to stay in business if we doubled the hourly rate. It’s not just their hourly wage that becomes a factor. Insurance in the roofing industry is extremely expensive. Not only are we required to carry expensive general liability insurance, we also have to have workers’ compensation insurance for employees on the roof. That comes to 40 percent of their wage. And on top of that, there’s payroll tax.
“We also do a lot of insurance restoration work like hail damage claims, and in those cases the insurance provider determines what they pay for labor and we work with it. If we come back saying it’s going to cost us way more on labor to do the job, the homeowner isn’t likely to want to cover the extra cost, especially not above their out-of-pocket deductible.”
Okay, let’s for the moment ignore the idea that Ms. Smith would pay $35 an hour as starting pay. Let’s imagine that she offered $20 an hour, roughly an 18 percent increase over her current pay and presumably substantially more than her competitors.
According to the textbook economics, Ms. Smith will be able to pull workers away from her competitors. This means that when she bids on a project she will have the great advantage that she will actually have the workers to do the project, whereas her competitors will not. This means that Ms. Smith will be far more likely to get the contract, since presumably the customer actually wants the work done.
If we are to take Ms. Smith’s comments in this interview at face value then she apparently doesn’t understand how labor markets work. This explains why wages may not be rising even if labor markets are tight and points to a serious skills problem in the U.S. economy.
Maybe the government should provide employers with an incentive for learning basic labor economics. At the very least, perhaps we should have free community college courses for employers in basic labor economics. If we take this interview as being indicative of the thinking of employers more generally, the economic payback could be enormous.
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