Monday, January 13, 2014

The Immigrant Sheetrocker Effect

The street-level consequence of a 12.5% foreign-labor incursion into an unsophisticated labor market causes a 23.4% income loss for natives. 

sheetrockers-2005 Hanging sheetrock (drywall) appears to be a job that anybody could do, until you actually try it.  The weight of 5/8 inch sheetrock is 2.3 lbs per square foot, or 110.4 lbs per 12 fo0t sheet.  Done properly, the ceiling is first, most rooms require full sheets, each sheet is balanced on your head while you and your partner struggle to get a few nails (requires both hands) into the sheet.  You can nail the sheet if the measurements are correct and the sheet did not get damaged in the process, in which case you start with a new sheet.  Many homeowners will try to save money doing their own sheetrock, but when they find out how proficient professional sheetrock crews are, and how little money they saved trying to do it themselves, most people never want to hang a piece of sheetrock again.

Sheetrock installers are very proficient and  there are hundreds of tricks of the trade.  “Rocking” is almost never an hourly job because the work is so strenuous, your arms are above you head much of the time, which is seriously painful until you get used to it.  Sheet-rockers take jobs on a per-foot basis to stay motivated and profit from their proficiency. There is generally a set minimum per foot price that is upheld throughout the regional market to ensure that this proficiency does not become a liability to himself and his vocation. 

There is an economic equilibrium that most construction markets will fall into, a certain amount of builders will require a certain amount of completions per year, roughly the same number of homeowners will do additions;  therefore, the demand for sheetrock hanging stays relatively static, unless the supply of sheet-rockers increases.  An increase in labor supply can be a hardship, but if the market rate is upheld, everyone adjusts their lifestyle accordingly and there is no hard feelings – it’s just a fact of life.

A problem occurs when there is an incursion of foreign-labor, generally illegal labor and therefore indentured, generally having complete disregard for the per-foot minimum status quo. Having no ties to the community, their only interest is improving life for themselves, bringing in more relatives to the US and “buying” into the market with lower per-foot prices. 

Assumptions:

1. There are seven two man crews, with an income requirement of $200.00 per day.
( $22,000.00 yr. per man,  if scheduling goes perfectly)

2. There is a fixed amount of market demand for sheetrock installation at 583 sheets per day.
(Three to four, 2000 sq.ft. homes completed daily)

3. Models include the addition of a Compliant crew, verses a Non-compliant foreign crew introduced to the labor supply.

  • Generally doing apprentice level work, builders take advantage of illegal status at a 10% premium.
  • Defects in workmanship are usually billed to the builder’s insurance as “settling.” 
  • No social obligations other than foreign remittance payments and usually a shared housing arrangement.
  • Discretionary income leaves the local and national economy immediately.

4. The Non-compliant foreign crew, works nights and weekends to maintain their income levels, but at a reduced price to ensure a (larger) market-share.

5. Builders pocket the labor savings from the scab crew, choosing to pay down loans, or take a vacation, rather than increase volume.

 

Table A: “Sheetrock Microeconomy in Equilibrium”

Sheetrock Crews Sheets Per Day Rate per ft. Crew Earnings per Day
Crew A 83.3 0.05 $200.00
Crew B 83.3 0.05 $200.00
Crew C 83.3 0.05 $200.00
Crew D 83.3 0.05 $200.00
Crew E 83.3 0.05 $200.00
Crew F 83.3 0.05 $200.00
Crew G 83.3 0.05 $200.00




Seven Crews 583 0.05 $1,400.00

I’ve used a per-foot rate of $0.05 which was customary in the early 1980’s when I was a drywall contractor.

The following table (Table B) introduces an eighth sheetrock crew that complies with the prevailing per-foot rate

Table B: “Compliant Sheetrock Crew added to Microeconomy”

Sheetrock Crews Sheets Per Day Rate per ft. Crew Earnings per
Day
Earnings Loss
Crew A 72.9 0.05 $175.00 -12.50%
Crew B 72.9 0.05 $175.00 -12.50%
Crew C 72.9 0.05 $175.00 -12.50%
Crew D 72.9 0.05 $175.00 -12.50%
Crew E 72.9 0.05 $175.00 -12.50%
Crew F 72.9 0.05 $175.00 -12.50%
Crew G 72.9 0.05 $175.00 -12.50%
New Compliant Crew 72.9 0.05 $175.00 0.00%





Eight Crews 583 0.05 $1,400.00

The compliant crew simply adds to labor capacity, there is no under-bidding cost disparity, this would be the normal case when a pair of citizen apprentices formed a new crew.  As expected, a 12.5% increase in labor availability causes a 12.5% earnings loss in those already participating in that labor market.  $25.00 per day, split between 2 crewmembers, is a hardship; however, discretionary spending remains within the community.

Table C: “Non-complaint Sheetrock Crew added to Microeconomy ”

Sheetrock Crews Sheets Per Day Rate per ft. Crew Earnings per Day Earnings Loss
Crew A 70.1 0.05 $166.87 -16.56%
Crew B 70.1 0.05 $166.87 -16.56%
Crew C 70.1 0.05 $166.87 -16.56%
Crew D 70.1 0.05 $166.87 -16.56%
Crew E 70.1 0.05 $166.87 -16.56%
Crew F 70.1 0.05 $166.87 -16.56%
Crew G 70.1 0.05 $166.87 -16.56%
Non-compliant Foreign Crew 92.6 0.045 $200.00 0.00%





Eight Crews 583 0.049375 $1,368.12

The Non-compliant Foreign Crew (Table C), through underbidding and extending work hours, damages each existing crew’s earnings by an additional 4.06% above the Table B scenario.  The Non-compliant Foreign Crew has no ties to the community, they simply work more hours to maintain the customary Crew Earnings Per Day

This situation can go on indefinitely, but relatively minor economic shocks. such as a small increase in the builder’s interest rate can result in fracturing of the customary per-foot rate – even with the assumption that demand maintains the 583 sheets per day level.

Table D: “Small Economic Shock Fractures Microeconomy”

Sheetrock Crews Sheets Per Day Rate per ft. Crew Earnings per day Earnings Loss
Crew A 70.9 0.045 $153.18 -23.41%
Crew B 70.9 0.045 $153.18 -23.41%
Crew C 70.9 0.045 $153.18 -23.41%
Crew D 70.9 0.045 $153.18 -23.41%
Crew E 70.9 0.045 $153.18 -23.41%
Crew F 70.9 0.045 $153.18 -23.41%
Crew G 70.9 0.045 $153.18 -23.41%
Non-compliant Foreign Crew 86.9 0.04 $166.87 -16.57%





Eight Crews 583 0.044375 $1,239.14

In the case of Table D, we see that a small economic shock, such as a small increase in interest rates on construction loans, has broken the customary per-foot minimum price.  In this case, the reduction in available work had damaged the earning capacity of this labor-force prior to the economic shock.   The Non-compliant Foreign Crew has also suffered a loss; moreover, the Non-compliant foreign crew and is in the process of setting an even lower per-foot price.

At this point in time, the builders are more vulnerable than ever to labor strikes and shutdowns with elevated daily interest costs.  The builders have gambled that the American sheet-rockers are unable to refuse the lower offer due their living expenses. Each American Crew has now lost $10,300.00 (23.41%)  in earnings capacity, due to the presence of the Non-compliant Foreign Crew.  (A crew that will not honor the customary per-foot price is unlikely to honor a picket-line, strike or slowdown.)

Multiply this scenario into the millions and the missing income reverberates throughout the local economy, vehicles and tools are not replaced in a timely fashion, restaurants  and bars lose business, insurance policies are cancelled, kids delay moving out of their parent’s homes etc. 

Here is a more sophisticated article, published by, The Federal Reserve Bank of Cleveland, indicating a 20% reduction in pay that coincides with our ever increasing amount of foreign born in the labor force. Correlation or causation?

Nevertheless, workers who were displaced from manufacturing and construction industries are among those with the worst wage outcomes according to the 2012 survey, with slightly more than 30 percent suffering at least a 20 percent wage loss.

Rather than 12.5%, as my article suggests, on May 22, 2013, the Bureau of Labor Statistics announced that the foreign born in the labor force has achieved 16.1 %, [1] rates this high have not been seen since the Great Depression. [2]

[1]  http://www.bls.gov/news.release/forbrn.nr0.htm   

[2] http://www.census.gov/prod/2009pubs/acs-10.pdf

 

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