New York- The labor market is stumping even the experts. The unemployment rate is near a 16-year low, and employers are fretting about their inability to find reliable workers. That shortage of workers should prompt an increase in wages. Remember that supply and demand curve: When the demand (for workers) exceeds the supply, prices should rise.
Yet wages have stubbornly resisted the pressure. As Janet L. Yellen, chairwoman of the Federal Reserve, noted in congressional testimony this week, the relationship between a tight labor market and wage pressure “has become more attenuated than we’ve been accustomed to historically.”
So why don’t employers offer more? That was a common question readers posed after an article last week about the government’s monthly jobs report quoted Sarah M. Smith, an owner of Rooforia Home Exteriors in Omaha. Ms. Smith depends on a federal program that gives temporary visas to guest workers — known as H-2B visas — because she is unable to find Americans to take a seasonal job repairing roofs that pays $17 an hour. The work is tough, she said, but “the pay is fair.”
Many people — including some economists — disagreed. By definition, they argued, if no one is willing to work for that wage, then the wage is too low. Others complained that allowing in guest workers pushes down the wages that American workers can get. (Employers have to advertise on a state website of job listings and at least twice in a local newspaper before they can apply to hire foreign workers on H-2B visas.)
Ms. Smith’s viewpoint, however, is echoed by thousands of employers, large and small, throughout the country. We asked this small-business owner to explain the financial constraints she confronts. Her answers shed some light on why wages are not going up. One reason is that while people want higher wages, they don’t want to pay higher prices. Average hourly wages have increased only 2.5 percent since last year, but prices of most goods and services have not risen much either. Year-over-year inflation is under 2 percent.
How much does it cost to repair a roof in Omaha?
Residential roofing jobs vary so much based on different factors, including the size, how high it is, how steep it is, the materials being installed. I would say, just by guessing, that our average roof replacement costs about $8,000. Usually we try to aim for 40 percent profit margin. A couple thousand for labor; the rest for materials, sales commission, taxes, insurance and overhead.
How did you arrive at the $17-an-hour rate?
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.
If you can’t get workers at $17 an hour, why don’t you offer higher pay?
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.
What do you think would happen if you did raise your prices to pay your workers more?
At the end of the day, if I were to say, “We’re a great company; we pay people double the prevailing wage, pay our insurance and taxes, buy the best materials for your house, and we give back to our community (we donate a percentage of our profits to our raise-a-roof initiative to donate roofs to families in need), but that means we’re going to charge you double for your roof,” I’m sure people (like the emailer) aren’t going to say: “Oh, that’s so great they pay their employees $35 an hour. Let’s write them a check for twice as much as their competitor because it makes us feel good!” They’re going to do what’s best for their bank account and their budget.
If you want to have lower-wage people paid more, you have to expect the price of the services to cost more; it’s not going to just come out of nowhere. That’s where the literal buck stops because no one wants to pay more of their hard-earned dollars. We still want to make a profit and not risk losing business because of increased prices.
Lastly, I would be willing to make a large bet that even if we did post a job for $35 an hour to do roofing in Omaha (it was 92 degrees this week), it would still be slim pickings. That’s why for us the H-2B program is a win-win: We get great workers whom we pay well above the minimum wage, and they are low-risk temporary immigrants who come here to do the job and go home to their families at the end of the season.