Hey Bossman, Is Underpaying for Skilled Labor Affecting Your Profit Margins?

Industrial Skilled Trades  |  April 22, 2022

How much is underpaying, what is the cost of unskilled hires, and how to know you're underpaying for skilled labor.

The Truth about Fair Wages

Blue collar workers are the backbone of the American workforce, and they are essential to keeping our economy strong.

In order to ensure a prosperous future for all, it's important that we value their skills and contributions by paying them a competitive wage. But what is a competitive wage, and how does it affect a workman's desire to show up every morning?

How much do superior skilled trades cost?

Although the definition of a competitive wage will vary depending on the region and level of skill required, we can all agree that a competitive wage not only covers living expenses but includes benefits like healthcare, retirement savings, and 401(K) opportunities, in addition to expendable income for their families.

Here are a few other things to keep in mind when it comes to benefits:

  • Paid time off and holidays
  • Cash incentives
  • Bonuses
  • Vehicle allowance
  • Mileage reimbursement
  • Training & certifications
  • Company cell phone
  • Health, dental, vision
  • Disability insurance
  • 401(K) Plans
  • Profit-sharing
  • Other retirement benefits

When a worker knows that they are being taken care of, they are more likely to be productive and loyal to their company. And while some may argue that paying a blue-collar worker a competitive wage will drive up the cost of goods and services, the truth is that it would only have a minimal impact on the project budget.

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Pay Averages are Higher Than You Think…

Not only did The Great Resignation increase pay averages significantly, but there are also other factors that you may be missing from your salary calculations.

Although the average reported average salary for highly skilled workers is 44K, the MossAdams 2021 Construction Industry Salary Report puts the average salary of a craftsman closer to 70K or more in certain areas - and that doesn't include project managers or superintendent positions. 

To help us frame what competitive wages mean, let’s take a look at whom we are talking about… and what fair wages could mean to their families. 

The Demographics of Industrial Skilled Tradesmen and Women

With 70,000 or more trades jobs being added annually in the United States, the unemployment rate for tradespeople is lower than it has ever been before. But who are these blue collar workers that are in such high demand? Here are a few demographics to know:

  • 86% are men, with an average age of 46
  • Most report at least a high school diploma or Associates degree
  • Electricians, plumbers, and HVAC are the most common skilled positions in industrial trades in demand
  • Most are or have been married with children

The backbone of America is made up of everyday folks who go to work, do their best, and expect to be fairly compensated for their efforts. 

Let's dig in a little bit further on the personalities of construction workers...

Four Insights about Skilled Labor Personality Types and What Makes Them Tick:

Who are blue collar workers?

An ongoing survey by CareerExplorer helps us uncover the personality traits of construction workers, and what makes them unique. Here are a few takeaways from the studies: 

When it comes to construction work, experience is king. You mostly depend on abilities you may develop through experience, with a little help from natural talent.

Construction workers are frequently under a lot of strain, with their day-to-day work being tough and risky, and frequent time pressure to complete tasks. 

People in construction enjoy working with their hands and especially enjoy the outdoors. 

They connect with the physical world—and typically do not deal with issues regarding ideas, information, or people, but rather concentrate on things that they can solve using their hands.

They are more extroverted and sociable than introverts. Meaning that they are more inclined to be happy if they're stimulated by the outside world, socializing with others, or trying new activities.

They aren't that satisfied with their jobs. Construction workers are in the bottom 9% of happy professions.

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4 Insights about Skilled Labor Personality Types

While the data on construction workers isn't necessarily conclusive to superior skilled trades, it certainly can give us insight into what makes them tick. A few takeaways about construction workers...

1) They need to be given new activities and things to learn, including more complex problem-solving tasks that aren't monotonous.


2) They may not make organization a priority, so providing structure for them can keep their day-to-day tasks from being overly stressful.


3) They are going to work best in team environments, where they can learn from each other and get some extraverted stimulation.


4) Because stress and risk are part of their job description, you can help eliminate some outside influences on their emotional wellbeing by offering better pay and benefits, making sure they are taken care of when they go home to their families in the afternoons.

It is important to understand that lower-income families spend most of their income on necessities like housing, utilities, and transportation...while middle-class families who may have more than one income spend at least half of their income on necessities, but have higher out-of-pocket health-related expenses.

As we can see, when competitive wages are not offered for skilled labor, there will be a risk of losing good employees to other businesses who are willing to pay more. This can lead to high turnover rates, decreased productivity, and even missed deadlines.

It's not just about the bottom line either. When businesses underpay their employees, it has a domino effect on the economy as a whole. Low wages lead to less spending, which in turn hurts local businesses and results in job losses. In other words, underpaying skilled laborers can be bad for business in more ways than one.

In a nutshell, blue-collar tradesmen rely on competitive wages for their quality of life. And qualify of life affects… well… everything… 

  • Economy
  • Mental health
  • Physical and emotional health
  • Morale in the workplace
  • Quality of life for their children
  • And the list goes on…

The High Cost of Unskilled Labor

If you believe that paying for skilled labor is high, then wait until you find the true costs of unskilled labor.

Underpaying skilled laborers may seem like a good way to save money in the short term, but it can have disastrous consequences for businesses in the long run. When employees are undervalued and not treated fairly, they often become unproductive and resentful. This can lead to a decrease in quality of work, as well as an increase in staff turnover rates… and ultimately, it can lead to hiring underskilled and underperforming employees.

When you have a team of skilled professionals, they are able to work quickly and efficiently to get the job done right the first time. Skilled labor is worth its weight in gold, and it's always more cost-effective in the long run to invest in quality employees.

In addition, having a team of skilled professionals means that you're less likely to experience missed deadlines or lazy work. Low wages tend to attract workers who are only looking for a quick paycheck, which can lead to poor work quality and frustration among other team members. Oftentimes, the saying, "You get what you pay for" rings true.

The high cost of unskilled labor is definitely something to keep in mind when you're hiring new employees. Investing is something that can often be seen in the world of construction. When a job is done by an unskilled worker, it can often lead to delays, missed deadlines, and lazy work. This can end up costing construction companies a lot of money in the end. In some cases, it can even lead to projects being canceled altogether.

It is important for construction companies to make sure that they are hiring skilled workers whenever possible. This will help to ensure that jobs are completed on time and with minimal errors. Skilled workers know what they are doing and they take their work seriously. They understand the importance of meeting deadlines and completing projects on schedule.

How does pay affect employee-employer relationships?

The fact is that there is a correlation between pay and employee satisfaction. In other words, employees who are paid more tend to be happier in their jobs than those who are paid less. They will also be more loyal and work harder.

When employees feel like they are being compensated fairly, they are more likely to feel appreciated by their employers and have a stronger sense of job satisfaction. The other reality is that when employees are unhappy with their pay, they may start looking for other jobs, which can lead to tension or conflict in the workplace.

Employee in-fighting can also be an issue caused by low morale and can have a domino effect on the quality of work and life outside the workplace.

Whatever the reason may be, it’s clear that pay plays an important role in employee-employer relationships. And, as an employer, it’s important to be aware of how your employees feel about their pay and take steps to address any issues that may arise.

Don't Forget about 2022 Inflation

With inflation at an all-time high (we're talking around 8.5% plus rising fuel and food costs, versus previous years where it was at around 2%), it's more important than ever to be shrewd when it comes to employee wages. Businesses need to find a way to offer competitive wages that will attract and keep the best employees without breaking the bank.

It is going to continue to increase, so it is important for businesses to find ways to keep salaries competitive and satisfactory to the needs of the employee and their families.

 

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How to Know If You're Underpaying

Obviously, you need to know the cost of living in your area and compare wages to your competitors. But that’s not the only way to tell if you are underpaying for skilled labor…

Are your employees constantly leaving to work for other companies?

Are you struggling to find qualified candidates for open positions?

Do your skilled laborers seem unhappy in the workplace? Is morale low?

Have you asked them…?

Here is a snapshot of 2021 pay averages in the United States, based on the MossAdams report:

  • Construction Manager: $162,443
  • Project Manager: $130,000
  • Estimator: $128,000
  • Foreman: $110,000
  • Craftsman: $81,744
  • Laborer: $56,314

But salaries vary greatly by construction type, as well. For example, the average salary of a foreman in residential is $99,427, while a foreman in commercial is $107,475 - that is an $8,048 difference, about 8%.

Even the 2022 PAS Construction/Construction Management Staff Salary Survey states that a Constructor Manager's average salary is $163,643. So, err on the side of caution and add a little bit more to attract top talent. This not only will help you attract the right talent, it will help the HR process of trying to hire the best fit for the job (having multiple candidates flock to the posting vs none).

geographical areas where workers wanted work or saw room for growth

Salary Variance By Region

Salary variance by region is even greater. A craftsman in Montana may get $61,000 while the same job description in Northern California would be closer to $95,000. 

The point is, if you are having a hard time filling certain positions, it might be because the wage you are offering is too low. Employees want to make sure they can take care of their families, and if your wages are below market value, they will find work elsewhere.

Resources to Compare Salaries

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Get the Manpower You Need While Treating Them Well

Companies like Industrial Skilled Trades have skilled tradespeople on their ‘deep bench.’ They can take the brunt by working with contractors to fill roles for every stage of a project, ensuring you have the correct workforce levels throughout. 

When is the best time to call a tradesman? Before you need ‘em. Skilled trades staffing is the ace up your sleeve for 2022 and beyond.

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