Construction Labor Costs in New York City

In New York City’s high-end construction industry, union developers and contractors have been steadily losing market share to nonunion firms. Labor union leadership considers this a temporary problem that will ease as the economy recovers from the current downturn. But the truth is that nonunion firms have become a permanent fixture in New York’s new economic reality. Nonunion-built, Manhattan-style high-rises proliferating in Brooklyn expose the fragile future of unionized construction—eroding even further the once impervious union monopoly—unless serious reforms are undertaken.

The expiration this year of 26 crucial labor contracts—22 of them on June 30—offers a unique opportunity for progress, at a time of at least 30 percent unemployment among building trade union members. While many employers favor union labor because of superior skill, speed, and safety, nearly all contractors and developers are now considering nonunion approaches, including open and merit shops. With the nonunion option growing in strength with the completion of every significant nonunion project, fully union construction has diminished from more than 85 percent of the market in the 1970s to less than 60 percent now

This report is not focused on wages and benefits, though they are discussed. It is about work rules and practices that impede productivity—and that are driving union developers and contractors to choose open and merit shops in preference to union contracts. Open shops are 20-30 percent less expensive than union shops. Wages, benefits, and, most importantly, wasteful work rules and practices combine to account for the differential— which could be minimized by enforcing a fully productive 8-hour workday earning an 8-hour paycheck. Examples of antiquated, cost-inflating labor practices include:

• higher paid operating engineers on hoists and elevators, even though lower-paid laborers could readily perform the work
• overstaffing of two or more workers to do the work of one, such as the unique contractual mandate that steamfitters work in pairs
• temporary (standby) services with multiple high-paid trades on site at all times, including plumbers and electricians, whose services are rarely needed

The City of New York’s rules for training and testing crane operators are of special significance. Currently, applicants need access to union members and equipment to obtain a license to operate large cranes, which effectively grants the union control of licensing, while restricting the supply of workers and driving up costs. Building on existing regulations for smaller cranes, the city should implement its own 2009 recommendation to accept national licensing, or reciprocal licensing with other major cities, for large cranes. These reforms would put the city in compliance with OSHA regulations, set to take effect in 2014, requiring retesting for license renewal.

Unionized construction is a world long characterized by maximum fractionalization—union locals, subcontractors, general contractors and construction managers, trade associations and negotiating representatives, developers and owner-builders. The system fragments the work, undermining labor productivity and management authority and flexibility. The archaic bargaining structure— lacking a master industry agreement—results in inconsistency and inefficiency. The entire management-labor ecosystem needs to be reconsidered and rationalized along modern management principles, with clear lines of authority between employer and employee.

Indeed, developers and contractors have already taken steps toward such industry restructuring. Leading developers have started taking a more active role in building—having their own in-house construction staff partner with the general contractor or construction manager, selecting trade subcontractors, negotiating with union officials for favorable terms for their projects. They are inspecting work sites, finding safety problems and ordering them fixed, and identifying individual workers for promotion or demotion.

If current trends continue, only the largest and most complex projects will be built fully union. The high cost of unproductive work practices will deter future use of union labor. The alternative is for current contractual negotiations to produce progressive, cost-reducing labor agreements to modify these trends. In practice, this means:

• removing restrictions on the contractor’s choice of equipment, technology, tools, methods, designs, materials, prefabrication and off-site work
• abolishing contractual requirements for temporary services
• beginning and ending the work day at the worker’s assigned station
• instituting an industry-wide standard of an 8-hour day, 40-hour week, with overtime at time-and-a-half over 40 hours
• permitting staggered start times among and within trades
• adopting nationally recognized major holidays as the standard holiday schedule

The moment of opportunity is now.