Wage growth for construction workers is historically low.
Let's see if we can figure out why:
First, home production has been relatively low -- which should be expected following a long period of overbuilding -- but that was the excuse from 2007 to 2010. Eight years after home building volume peaked, we still haven't experienced a rebound in residential construction.
Low household formation, caused, in part, by as millenials living in their parents' basements, and the soft economic recovery, could also be to blame.
One excuse, which may cause an arched eyebrow, is a shortage of labor. More specifically, homebuilders claim they can't ramp-up production because of their inability to find qualified labor.
This seems like a weak excuse.
The chart above shows that wage growth for construction workers has been falling steadily since 2006 -- when housing peaked.
Bank of America Merrill Lynch's economics team has a solution for homebuilders in need of qualified workers: Raise wages.
Average hourly earnings are running at 2.2% yoy, up from the low of 0.1% yoy in early 2012, but still a historically low pace. Wage growth most recently peaked at 5.0% yoy in early 2009 — wage growth lags employment, which peaked in early 2006. After controlling for inflation, real wage growth was less than 1.0%. Builders are still seemingly worried about profit margins, sacrificing volume for pricing and resisting more expensive labor. We don't think this is a sustainable model.
I suspect that soft demand for new homes, and not a labor shortage, is the reason for the weak wage growth. If homebuilders believe otherwise, the solution offered by the economists is worth a try.
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Barry L Ritholtz at email@example.com