Conversely, when labor of a certain kind is in high demand and short supply, pay goes sky high. That’s why some MBAs and software engineers get six-figure salaries right out of school. According to Adam Smith, over time the attractive salaries will persuade more people to enter those disciplines, which will increase supply and cause their pay scales to drop. Pay scales constantly teeter towards an equilibrium point at which supply is perfectly balanced with demand. Theoretically, if the job market called for 500,000 plumbers, pay scales would adjust until exactly that number were available. In the real world this never happens, but in most markets you can detect the teetering in prevailing pay practices.
Lawbreakers: Except once in a while economic law goes haywire. A perfect example has been trade wages during this decade of critical shortages of skilled trade workers.
Wage scales have in fact steadily increased throughout the 1990s. The Construction Labor Research Council has reported annual gains averaging around 3 percent throughout the 1990s for unionized trades. PAS Inc., which tracks open shop construction compensation, reports about 4 percent annual increases for nonunion workers. But these wage gains — cut in half or so by inflation — are too modest to spur greater interest in trade careers, as Adam Smith would have predicted. We are nowhere near equilibrium between demand for and supply of plumbers, pipefitters, service technicians and other skilled craft workers. If anything, shortages continue to worsen.
Why haven’t trade wages gone up more in response to the industry’s skilled labor shortage? Nobody has really nailed down an answer, but I have a theory that goes as follows.
In the real world, when labor commands greater pay — due either to market forces or artificial influences such as union coercion — businesses don’t always give in. Instead of raising pay, sometimes they reduce their demand for labor through automation or other means. Automation has not been a meaningful factor in our industry, but other management practices have served to reduce labor costs.
Devaluation: Most pronounced has been a semi-conscious devaluation of trade work. Contractors have learned to get by with reduced skill levels. Instead of hiring fully trained journeymen for every position, they employ semi-skilled workers who, for instance, may not know how to weld, but perform acceptably well setting fixtures or roughing in.
This trend can be directly traced to the decline of construction unions with their training emphasis and restrictive work rules. Nonunion contractors are free to employ their resources to maximum efficiency. Why pay for an entire crew of people with welding skills, goes their thinking, when they spend most of their time on simpler tasks. Instead, they employ only one or two welders and surround them with workers of lesser skill, who get paid less. Nonunion contractors point to this as one of their greatest competitive advantages over union shops. It has served to restrain overall pay scales, and as a result, economic law is not working to stimulate the supply of badly needed skilled trade workers.
As much as I admire economic efficiency, it’s hard to see such devaluation as good news. I grew up in a working class environment where learning a craft put people at the top of the socio-economic heap. They were admired for their know-how in building and fixing things, and for earning more bucks than the neighborhood norm. They were royalty among working stiffs.
Is this still the case? Not judging from the difficulty we have getting talented young people to pursue trade careers.
Nor do I believe most contractors are management geniuses who can direct precisely the right amount of labor skill to every task. Quality is better served when simple jobs get done by someone overqualified, as opposed to complicated tasks performed by people who are not up to snuff.
Somehow, buildings are still going up and mechanical systems serviced despite the skilled labor shortage. But I hear an awful lot of reports of shoddy work, and even more of dispirited workers.
In the long run crime does not pay. Maybe this applies to those who break economic laws as well as civil ones.