Labor costs make up a significant portion of construction project expenses. Accurately estimating these costs is critical to ensuring project profitability and quality standards.
Nonunion workers face lower indirect benefits from a decline in union density and have lost out on the union wage premium. However, there are many other factors that influence wages including industry-region fixed effects and technology.
Collective Bargaining Agreements
Collective bargaining is a process where an employer and trade union negotiate over issues that affect both the worker and the company. The end goal is to reach a compromise that works for both parties. Typically, these negotiations involve back-and-forth discussions that result in offers and counteroffers. The process is complex and time-consuming.
While the short-term impact of labor agreements is difficult to quantify, some argue that they have a positive long-term economic benefit for both construction workers and communities. For example, the 2022 agreement reached to grant railroad workers one annual paid day off and three annual periods of sick leave is widely considered to be historic progress.
However, PLAs discourage the more than 89% of quality contractors who do not belong to a union from bidding on Federal projects. Furthermore, they are inconsistent with existing prequalification procedures designed to screen qualified contractors for the ability to build quality projects at a competitive price. Hardworking taxpayers deserve policies that encourage all qualified contractors to compete for a project and the opportunity to work on it.
Wages
The prevailing hourly rates set by government authorities are another factor that influence labor costs. These rates ensure that workers are compensated fairly for their work. This is particularly important in construction, where there are often significant variations in labor costs across the country.
The level of skill a worker brings to the job also impacts labour costs. Highly skilled workers such as plumbers and electricians charge more than general labourers. This is especially true for workers that perform specialized tasks, such as carpentry or electrical work.
Finally, wages also vary depending on a project’s location. A higher minimum wage in a region can increase labour costs, as can the availability of skilled workers. Additionally, some jurisdictions require contractors to pay overtime or penalty rates for work performed outside regular working hours. This can add up to considerable extra costs for construction projects.
Overtime
During times of restricted labor supply, construction contractors may have to work overtime to complete their tasks. This can cause a loss of productivity, which is passed onto project costs. Fortunately, there are ways to reduce overtime by implementing technology or by hiring additional workers.
It’s important for construction estimators to understand how prevailing wage laws and hourly rates affect project costs. These rates are set by state or federal authorities to ensure that contractors pay their employees a fair compensation rate for their work. By failing to meet these standards, contractors could face a loss of reputation and costly legal battles.
Another common factor that impacts construction labor costs is regional and market factors. These can influence labor rates and availability, as well as the overall economic climate. This requires construction companies to conduct regular risk assessments and create detailed budgets that take these factors into consideration. By doing so, they can be more accurate when estimating construction costs and avoid any potential cost overruns. This is especially crucial for projects that require specialized labor, as skilled workers are often more expensive than general laborers.
Training
Construction estimates need to consider not only the direct labor costs but also indirect costs, such as workers’ compensation and liability insurance for employees and rental fees for equipment. Estimators must also know how to read blueprints and consult with experienced professionals for a complete estimate of the project cost.
Nonunion contractors often hire independent contractors instead of unionized workers to cut costs and avoid paying union wages and benefits. However, the line between employees and independent contractors is blurry and many construction employers misclassify their workers as independent contractors to avoid paying taxes and keeping overhead low.
A cross-sectional study of industrial, commercial and institutional (ICI) construction from 2006 to 2012 found a favourable association between business unionisation and lost-time workers’ compensation injury claims, while an unfavourable association was observed with no-lost-time or medical-aid-only claim incidence. This finding corroborated that of an earlier study, and was robust to several sensitivity analyses. A key strength of the study was the availability of detailed, matched worker-company-employer data, along with a fine-grained classification of the ICI industry and geographic region.
Safety
Safety measures are a key component of construction estimates, especially for projects that are subject to union regulations. Depending on the region, these can include prevailing union wage rates, overtime requirements, and penalties for working outside of regular hours. Complying with these rules ensures fair compensation for workers and provides a realistic assessment of labor costs.
In addition to the Occupational Safety and Health Administration, unions have their own safety committees that oversee worker training. These are critical in preventing injuries on the job, which can be costly for construction companies. Keeping safety at the forefront of estimation allows project teams to keep these costs as low as possible.
Corroborating findings from Amick et al 20, this study found a favourable association between company unionisation and a lower incidence of lost-time workers’ compensation injury claims. However, it did not find a relationship between unionisation and the risk of no-lost-time (medical aid-only) claim incidence, which may be due to improved control for confounding by company size in this study. The protective effect of unionisation diminishes as the company size increases, and a negative relationship is observed for companies with