Creative corner

    Michael Maiello's picture

    David Brooks Does Not Understand How Wages Work

    Today, David Brooks made the absurd claim that the construction industry is experiencing a labor shortage because Americans won't take construction jobs:

    "Construction is hard, many families demean physical labor and construction is highly cyclical. Hundreds of thousands of people lost construction jobs during the financial crisis and don’t want to come back. They want steadier work even at a lower salary."

    I don't buy it.  While I suppose there are some jobs that people won't take at any price, Brooks can't seem to work out the basic math of his own column, as he follows up with:

    "Adjusting for inflation, wages are roughly where they were, at about $27 an hour on average in a place like Colorado. Instead, employers have had to cut back on output. One builder told Reuters that he could take on 10 percent more projects per year if he could find the crews."

    Let's think about this for a second.  A builder complains he cannot find crews to work on his projects.  Yet real wages have been stagnant since the last construction boom. This does not equate to "he can't find workers at any price."  This means that he cannot find workers who will do what he wants without impacting his margins. Our builder is looking at these extra projects he could do and is saying he will only do them if, as owner of the development company, he can realize his preferred rate of return.  Since wages are the cost he figures he can most control he's holding firm on what he will pay to get these projects done.

    The Brooks argument that the industry can't even seem to recruit out of high school because families "demean physical labor," is especially laughable. The industry is, by Brooks' own description, going into schools to recruit for an industry that has shown no real wage growth in 10 years.  None.  Maybe families are demeaning not physical labor so much as unrewarding physical labor.  Whether or not a person will take a job that involves physical risk or discomfort is obviously a personal decision but I'd think a top question would be whether or not the pay is worth the chance of injury or the sweat. Industry that does not reward productivity with rising wages would not be a pick for most.

    Now, the Brooks column is about immigration and what he wants to argue is that immigrants don't take jobs away from born citizens but instead take jobs that born citizens don't want. His secondary point is that there is no fixed pool of opportunities, but rather one that contracts and surges with the economy.

    That the breadth of opportunities available is inconstant is empirically correct.   That immigrants take the jobs that born citizens refuse seems contradicted by the article.  Were it true, our real estate developer would have no trouble hiring crews for the incremental projects he says he wants to complete. No, the problem here is simply that the capital owner has a return expectation that he is unwilling to revise in order to meet the wage expectations of his potential workers.  That is not a skills gap.  That is not an unwillingness on the part of workers (immigrant or not).  It is a pricing difference between two parties in a more complex than it seems transaction.

    Ultimately, when it comes to immigration, I am a "the more the merrier," sort. I believe all the arguments about fresh ideas and refreshed demographics and I look forward to new neighbors and the virtuous cycle of work and consumption that can result.

    But when it comes to jobs and wages, the real struggle is not between immigrants and the native born, it's between capital owners and those who actually do all the heavty lifting.

    Topics: 

    Comments

    Commie!


    Common sense is for communists.


    Interesting topic. I hardly pay attention to Brooks or the NYT anymore. Here is link to a 64 page PDF of a report, Shaping the Future of Construction:

    http://www3.weforum.org/docs/WEF_Shaping_the_Future_of_Construction_full...

    You can either read the executive summary, or skip ahead to page 36 to read about workforce issues.

    "The E&C industry will face stiff recruiting and talent challenges in the years ahead. One major challenge is the prospective scarcity of skilled labour, driven by demographic shifts in developed countries. A case in point is the United States: between 1985 and 2014, the average age of construction workers surged from 36 to 43 years, while over the same period the proportion of soon-to-be retirees (aged 45 to 64 years) increased from 25% to 40% (see Figure 15). 81 Another serious challenge relates to the increasing sophistication of technology, which demands new and broader skill sets at all levels of a company. A final challenge is the high volatility of workforce demand and composition: staff demands become evident at short notice following a
    competitive tendering bid, and the execution of contracts typically requires the short-term integration of a transient workforce from multiple subcontractors."

    The authors accurately observe that the focus on low bids is a problem, but offer no solution. Besides bromides about better training, the proposed solutions include emulating the auto industry in terms of closely monitoring the work, expanding the use of BIM software throughout the industry, semi-automation of construction techniques, and increasing the size of firms. Frankly, firms will have to be larger to afford the other three recommendations, and none of them imply higher wages for anyone outside the trailers.

    Also, a large portion of future construction is going to be retrofit, in which BIM and automation are more difficult.


    Fascinating.  Thanks for this.


    You guys are so two thousand and ten...You don't BUILD houses anymore--You print themhttps://www.theguardian.com/technology/video/2014/apr/29/3d-printer-builds-houses-china-video


    Brooks speaks for and influences the moderate wing of the republican party. If we want to understand those voters reading Brooks is essential. And we want to understand those voters because those are the people we need to move towards the democrats to win in some of the red or even purple states. I agree with rmrd who has frequently posted that democrats cannot reach Trump's supporters. We need to reach republican moderates who disliked Trump and who have been uncomfortable with the extreme right wing, evangelicals, and anti-environmentalists for years if we want to take back state governments and house and senate seats.


    I agree and I think the same about another NYT columnist that has been a bete noire for a lot of liberal bloggers: Tom Friedman. On the other hand, younger voters left right and center don't pay any attention to any of these folks, who knows what they pay attention to and I doubt the op-ed writers understand them either. (I was just reading an art review by a millenial about a show in L.A., it is like in a different language. This is why I am thinking on that.) Except maybe Krugman, Krugman somehow got himself an it factor, he is a celeb.


    Except maybe Krugman, Krugman somehow got himself an it factor, he is a celeb.

    Though on the season premiere of Girls (which, yes, I hate-watch) Krugman is the butt of millennial jokes. I think he's losing his halo.


    I bow to your advanced knowledge of Lena scripts. And doh, I think I figured out the correct answer: libertarians like Tyler Cowen.

    (Article I posted there on millenials certainly rings true for me as to the 10 or so I worked with as temps this last summer--was a good mixture too, not only college students but supermarket cashier workers, and semi-lazy hipsters getting work on Taskrabbit... and that's without going into listening to complaints from boomer male colleagues about their children.)


    That is a good summary of the status of the industry. While it does a great job at showing the contrast between traditional and emerging processes such as Building Information Modeling and tools requiring greater technical expertise, there is another change that should be emphasized: a breakdown of the previous management culture.

    In the traditional construction management structure, a person had to demonstrate competence in their responsibilities before given the task of managing others. So, in the case of carpentry, the progression is Laborer, Carpenter's Helper, Carpenter, Lead Carpenter, Site Supervisor. The Supervisor has to manage other trades and thus has to understand enough about them to control the assembly. This seems a simple of enough program to follow but other factors are in play. The need to manage the job as parts of a competitive deal puts a high premium on corporate project management skills. It introduces a selection process that interrupts the traditional sequence in order to utilize those who work well in both environments. 

    So the preponderance of older workers is not just about how many new people are coming into the industry. The older workers are not being replicated by the younger ones who are there now.


    Good post Mike.  I would add that the Colorado construction wage paradigm demonstrates how raising the minimum wage can in some situations lead paradoxically to higher employment.  In the Centennial State, it appears that builders are forsaking profitable projects because taking on more work would require them to pay higher wages across the board than the current industry average of $26.  The resulting higher labor costs would reduce profits per project by a greater amount than the increase in profits from more projects (with lower margins) overall. 

    Now imagine that Colorado raises the minimum wage for construction work to $30/hour.  Assuming that builders can still realize sufficient profits at this labor price point to justify realistic bids, we can project an increase in total employment in construction.  This is because builders will take on as many projects as they can staff at $30 per hour regardless of whether total profits would be higher if labor costs were lower.

    In an employment market characterized by high barriers to entry and a limited number of employers (depicted in chart below), this situation is most likely to occur.  Thus, raising the minimum wage from W2 to W1 will lead to an increase in jobs.  See also http://davidcard.berkeley.edu/papers/njmin-aer.pdf

    X axis = Number of workers

    Y axis = Wages

    Negative sloping line depicts the point where marginal return per employee equals wages paid.  Higher wages mean fewer employees because the last hired employees must generate a higher return for the employer to justify their higher salaries.  Lower wages mean more employees because the last hired employees do not need to generate as great a return for their employer.

    The steeper positive sloping line depicts the marginal cost of hiring one more worker at any particular point.  The less steep line depicts the average cost of labor (i.e., the prevailing wage) necessary to entice any specific number of employees.  Where the marginal cost is steeper, employers will not produce at an optimal level.  Doing so would require them to forsake the supernormal profits they gain from paying at a below-optimal wage level.


    Latest Comments