An Addendum on Construction Unions and Worker Wages and Productivity

Frank Manzo IV is the Policy Director of the Illinois Economic Policy Institute (ILEPI). Visit ILEPI at www.illinoisepi.org or follow ILEPI on Twitter @illinoisEPI.


After our previous post was published, ILEPI received a few emails and tweets. ILEPI responded to the first question with a reply to the initial blog post. This is a response to the second question. Remember that the data used is for the entire construction industry, including both public and private projects. The question, posed by researchers out in California and right here in Illinois, was referring to labor costs. What is the relationship between unions and per-worker hourly wages and benefits, at least according to the simple correlation? Is it higher than the increase in productivity?

The Figure above shows the same data from the 2012 Economic Census, this time with construction worker wages plus fringe benefits divided by total construction worker hours.

The data indicate that a 1 percentage-point increase in unionization increases “value added” to the economy by $0.353 per hour per worker, after netting out wages paid to blue-collar construction workers and total benefits paidThus, labor “captures” 69.5 percent of the increase in productivity, or $0.805/($0.805+$0.353) in this simple case. The remaining $0.353 per hour goes to contractor profits or to the government or to the larger economy, resulting in savings that offset higher labor costs. Higher productivity means either that workers get jobs done quicker or fewer workers are required to finish the job in the same amount of time.

Worker wages increase. Productivity does as well… by more than the increase in unit labor costs. In fact, it is more probable than not that worker wages increase because productivity goes up. That is a good thing.

Once again, this is actual data from the U.S. Census Bureau, the Department of Commerce, and the Bureau of Labor Statistics. Data, not assumptions.

In any case, the previous blog post created enough discussion that ILEPI may seek partnerships with academics and researchers to delve deeper into the data and perform a more complete analysis.


[An Aside: It is imperative that researchers, legislators, and the public remain skeptical of claims that lowering worker wages can increase productivity or savings, especially when the claims are not supported by any evidence in peer-reviewed economic journals. When wages are cut by 10 percent or more, workers do not tend to go into work the next day, thank their boss, work just as hard, and invest in their future in that career. Instead, they leave that job or that industry for a new position that rewards their skill set and work ethic. We could lower the salaries of doctors all the way down to the minimum wage. And sure, that means it would be cheaper to hire more doctors and to increase employment. Most patients, however, would not be very thrilled about the skill-level, productivity, safety, and quality of their new doctors. The point is that prosperity is generally not achieved by reducing incomes.]

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