After years of steady increases, wages for many craftworkers have jumped recently, pushed up by the pressures of a hot economy, high inflation and labor shortages. Union settlements, in particular, have seen an atypical uptick, while open shop wages appear to be reaching a high point.

Among construction union settlements, first year increases rose 0.8% from second quarter 2021 to Q2 this year, reaching an average of 3.6% across all crafts, according to data from Construction Labor Research Council’s settlements report for the second quarter. That rise signifies a notable increase, given that average union settlements increased by just 0.1% to 0.2% annually for nearly a decade following the downturn of 2008.

Rising Faster

Although settlements dropped slightly at the start of the pandemic—down 0.2% between 2019 and 2020—they are rising again at a much faster rate. According to Carey Peters, council executive director, early data suggest that the average could reach between 3.7% and 4% for third-quarter settlements, with the council report to be released in early October. If average settlements reach 4%, that would mark a 1% annual bump from the previous year—a gain made in one year that would equal what took nearly a decade previously.

Peters suggests that inflationary pressures could be the driving factor. “The labor shortage didn’t have a big effect on [union] wage increases,” he says. “COVID-19 had a short-term effect, but inflation has had a much more substantial impact on the size of increases.”

Regionally, the Pacific Northwest, 5.7%, northern Rocky Mountain states at 5% and New England at 4.3% reported the highest increases in the second quarter report. Some trades have seen recently more dramatic increases than others. Carpenters tallied a 4.8% average hike, up from 2.7% in 2021, according to the report. Cement masons and operating engineers each reported increases of 4.3% in the quarter, up from 2.8% in 2021. By comparison, plasterers reported decreases from 2.7% in 2021 to 2.3% in the second quarter.

Market Shift

Unions and contractor groups that are negotiating agreements this year face a much different market than those who settled in 2021, says Miles Beatty, executive director of the Finishing Contractors Association of Chicago. He says his negotiations with Painters Local 14 last year resulted in a three-year deal that averages 3% annually. “I’m in a peer group with other executive directors around the country who are in the finishing trades and this year a lot of them are looking at 4% or 5%,” he says. “The timing just worked out that way for us.”

Mark Breslin, CEO of union contractor group United Contractors in California’s Bay Area, says recent settlements have averaged around 4.6%, up nearly a full point since last year. Despite the increase, Breslin says the agreements have been reasonable in the face of historically high inflation.

“I don’t see the unions taking undue advantage,” he says. “They recognize that they have to represent members with inflationary pressures, but it’s been a more rational business approach than it could have been. Nobody wants to jack up wages and then go into a recession with enormous numbers that can’t compete against the open shop.”

Meanwhile, open shop firms are also digesting sharp increases in average wages for craftworkers. Average hikes across all trades rose from 3.4% in 2020 to 4.6% last year, according to the PAS 2022 Merit Shop Wage and Benefit Survey. Importantly, the jump in average wage hikes was well above anticipated increases, suggesting that higher labor costs caught many contractors by surprise.

While it is common for contractors to underestimate future wage rates by 0.5%, many who responded to the PAS survey were off by up to 2 percentage points, says Jeff Robinson, firm president. Respondents in 2020 projected that increases for boilermakers would average 3% in 2021, but the actual hike came in at 5%. Similarly, ironworkers’ increases were also projected at 3%, but came in at 4.69%.

After the wage increases of 2021, Robinson says open shop firms are likely to see another year of 4.6% hikes—essentially staying flat. “There’s definitely a lot more caution now,” he says. “Craft [wage increases] probably won’t hit 5%. If we’re not at peak now, we’re close.”

Ken Simonson, chief economist of the Associated General Contractors of America, says construction companies continue to face numerous challenges in trying to attract workers, including some new ones. During the pandemic, he notes that many industries allowed work-from-home and flexible work hours, arrangements that are not viable for craftworkers. Rising wages in other industries also are adding pressure.

“The construction industry was taken by surprise by how much wages went up in other parts of the economy and therefore how much they would need to increase wages in order to retain and attract workers,” Simonson says. “I believe we’re in a prolonged period of 5% wage increases or even more for craftworkers.”