Labor Shortage Boosts Wages and Cost of Doing Business
Most businesses don’t like to talk about it except in the most general terms, but there is clear evidence that Orange County’s growing labor shortage is driving wages up and adding considerably to the cost of doing business.
From 1985 to 1987, the last year for which comprehensive wage data is available, average monthly pay in the county rose 9.5% to $1,868, while the rate of inflation climbed about 8.5%.
But in industries in which job shortages have developed, average monthly pay increased considerably more.
In chemical manufacturing, for example, the average jumped 25.1% to $2,669, according to a report by the state Employment Development Department. In legal services--which includes lawyers, paralegals, legal and general secretaries, researchers and clerks--it zoomed up 17.6% to $3,075.
Other sizable wage increases were recorded in precision instruments manufacturing, up 13.2% to an average of $2,349 a month; wholesale trades, up 13.3% to $2,294, and health services, up 12.5% to $2,224.
If the monthly averages sound low, it is because they cover a wide range of jobs within an individual industry: from the lowest-paid production and clerical people to top managers, said Daniel Johnson, the Employment Development Department’s labor market analyst for Orange County. The averages also include part-time workers.
Following chemical workers in terms of percentage gain were private household workers--maids, gardeners, cleaners--whose average monthly pay jumped 22% in the 2 years.
That increase didn’t mean much, however, because it simply moved the average from $576 a month to $703 a month, still the lowest of the 47 separate job classifications tracked by the agency.
The percentage increase for domestics, however, reflects shortages caused by a tightening of the nation’s immigration laws and illustrates how high wages can soar when demand outstrips supply.
Further evidence of the impact that supply and demand have on pay comes from the juxtaposition of two recent reports:
On Nov. 28, as part of a national survey, the Towers Perrin consulting group said annual raises for salaried and hourly workers in the county would average just under 5%.
The Chapman College Center for Economic Research predicted Dec. 8 that median family income in the county would rise 10.5% next year.
The reason that income can rise more than twice as much as the average raise is that a lot of the income will come from jobs that are newly created or are filled by new people next year, said James Doti, Chapman’s acting president and a specialist on the county’s economy.
In other words, employers will probably pay a lot more to those recruited into hard-to-fill positions than to workers who are already here.
Shortages of workers often cause that kind of situation, said Michael I. Luger, associate professor of regional planning at the University of North Carolina at Chapel Hill.
In North Carolina--where a booming high-technology industry has moved into a state where workers, particularly in the manufacturing industries, have had wages among the lowest in the nation--demand for skilled workers is creating sizable wage-rate disparities among occupational groups and regions, he said.
That, in turn, is causing a redistribution of employment, he said, as lower-paid workers come into the higher-paying regions seeking work, and as smaller companies that can’t compete in the research center move into other areas seeking employees who will work for lower pay.
The wage escalation, Luger said, is also hastening the automation of manufacturing facilities, because the high initial expense of automating is being seen as a way of avoiding increasing labor costs.
In Orange County, wage escalation is hastening a change in the basic makeup of industry, from blue-collar manufacturing to research, retailing and services, Doti said.
Many the county’s manufacturers are relocating labor-intensive production facilities to less-costly areas in surrounding counties or in other parts of the country, he said. AVERAGE MONTHLY PAY IN SELECTED ORANGE COUNTY EMPLOYMENT GROUPS
Includes full-time and part-time workers
Group 3rd Quarter 3rd Quarter % Change 1985 1987 85-87 Construction $2,060 $2,191 6.4 FINANCE, INSURANCE, REAL ESTATE Banking 1,614 2,237 14.8 Credit, other than banks 2,024 2,292 13.2 Insurance 3,422 4,112 20.0 Real Estate 1,865 2,122 13.8 GOVERNMENT Federal 1,927 1,955 1.5 Local 1,655 1,850 11.8 State 2,112 2,393 13.3 MANUFACTURING Aircraft, missiles, space 2,732 2,926 7.1 Chemicals 2,133 2,669 25.1 Electronic equipment 2,403 2,639 9.7 Other electrical 1,980 2,282 15.3 Fabricated metals 1,966 2,060 4.8 Food products 1,897 2,136 12.6 Furniture 1,337 1,587 18.7 Machinery 2,211 2,566 11.1 Precision instruments 2,075 2,349 13.2 Printing, publishing 1,787 1,881 5.3 Rubber, plastics 1,546 1,653 6.9 RETAIL TRADE Building, hardware material 1,408 1,596 13.4 Dining and drinking places 641 700 9.2 Food stores 1,493 1,523 6.7 General merchandise 1,044 1,029 -1.4 SERVICES Hotels, motels 871 912 4.7 Personal services 920 930 1.1 Business services 1,520 1,663 9.4 Auto repair 1,430 1,499 4.8 Amusement, recreation 1,194 1,304 9.2 Health services 1,977 2,224 12.5 Legal services 2,615 3,075 17.6 Private households 576 703 22.0 TRANSPORTATION/ PUBLIC UTILITIES Communications 2,320 2,463 6.2 Trucking & warehousing 1,773 2,052 15.7 Passenger transportation 1,195 1,200 0.4 Electric, gas, sanitation 2,443 2,718 11.3 Wholesale trade 2,025 2,294 13.3 All industry groups 1,706 1,868 9.5
Source: California Employment Development Department
