Via Quotulatiousness comes a post from Colby Cosh on a topic that is near and dear to me: the labour supply in Fort McMurray, Alberta.
Colby describes the story of his father in Fort Mac, who was fortunate enough to have bought into the insane local real estate market in time to cash out and extract some sweet land rents. Cosh argues that, statistically speaking, the labour supply in Fort Mac is that of a boomer age (my dad, who is in his fifties, also would agree that the average age of a tradesman is in their late fifties) and at this age, offering the labour supply higher wages will result in a faster retraction of labour vis-a-vis a ‘backward-bending’ labour supply curve.
This theory proposes that as wage rates increase, workers can afford to take more leisure time and hence withdraw their labour supply. If Buddy and George are making 1500 in a 4-day 40 hour work week, and suddenly they get raises to 2000 per week, they won’t have to work fridays to meet their minimum income requirement. When the foreman comes around on Wednesday afternoon seeking out weekend “time and a half” or “double bubble” volunteers, he’s less likely to get hits from these older workers who are closing in on a decent pension and an accumulated wad of savings and real estate rents.
I think, however, that Cosh’s father, a textbook example he may well be, is not a representative example of your average Fort McMurray tradesman from out of town who stays in a work camp, lives in Edmonton or Newfoundland and doesn’t have much savings due to divorce and tobacco, gasoline, and other taxes. As the wage rates increase for these workers, there are few local recreation opportunities for them besides drinkin’ and gamblin’, and so it would take a greater increase in wages before they withdraw their labour. Furthermore, these workers have ’setup costs’ such as travelling to and from Fort McMurray – be it by bus or their own vehicle, so a good portion of camp residents don’t mind the “11 and 3″ work schedule.
An effective overtime scheme, Cosh argues, will get workers to expand their supply of labour, but this means little in the presence of a poorly designed tax structure. If a guy makes 30 dollars an hour and works 10 hour days for 7 days straight, he makes straight time, Monday through Thursday, time and a half on Friday and double time on Saturday and Sunday. Even though a guy might make ‘double bubble’ on the weekend, he gets absolutely nailed in terms of taxes. His take-home income per hour is less on these days than on a straight time day, and the tax structure itself is a disincentive to work, or an incentive to withraw labour, depending on how you look at it.
Absent from many discussions about Fort McMurray is the strong presence of a crack cocaine economy, due to ‘piss test’ regulations put in place. If a worker even wants to step foot on a site, he has to pass a drug and alcohol test. Since Mary Jane lingers in the system for so long, it is not the drug of choice. Rather, crack cocaine can be eliminated from the system in three days (so I am told), hence the prevalence of this drug in proportion to marijuana. I can see the intent of this policy: an employer does not want to have drugged-up employees running around a dangerous construction site and possibly be left with a fatality on its safety record, which affects its probability of obtaining future contract bids. Drug and Alcohol testing also weeds out the marginally low productive workers whose value of marginal product of labour is below the wage rate.
Employers are theoretically able to offer bonuses to their workers for ’staying clean’ and can then pay them a premium on their work, done without the aid of drugs. In the short run, this creates an inintended consequence of a labour shortage as a substantial amount of workers fail their tests and are turned away. I have heard stories like 200 Insulators being dispatched to fill a labour requirement of 50 workers because 150 of them failed their piss-tests. I can’t verify if it was actually insulators, so don’t take that for a fact. It’s an example. In the long run, these workers birth a black market of ‘clean piss’ or a market for ‘piss kits’ that will enable them to get back on site.
Part of the labour shortage, I am now finding, is more perceived than real. Engineers seem to ignore the law of diminishing returns to labour when they throw more and more workers at a project, hoping that it will get done faster. Labour unions such as the Pipefitters try to get more workers on-site, because this means more work for the brotherhood. After a point, organized labour tends to ‘featherbed’ or actualy try to slow down the production schedule in order to extract rents in the form of more man-hours per job. Wokers begin to bump up against eachother and their work interferes with other trades, and pretty soon production grinds to a halt.
Fort McMurray’s labour struggles have more to do with low labour productivity, and this stems from poorly designed labour incentives. My Dad, for example, often cites ‘profit sharing’ as a better incentive mechanism. If a project comes in ahead of shedule and under budget, workers currently do not get any real bonuses besides the odd safety prize/ thermos. Ideally, a portion of the ‘under budget’ surplus would be distributed to each worker according to the number of man-hours they were on a job. If workers saw their buddy slacking off, they might be quick to police and scold shirkers. Granted, one could argue that giving workers a share according to the number of man-hours worked would actually increase the number of hours worked, but this would drive down the ‘per-hour’ bonus paid out, acting as a buffer. Employers and unions, under this scheme, might instead attempt to hire fewer workers and offer them more hours, thereby freeing up more labour, which puts downward pressure on wages. Since 2.3 of the costs of construction is labour, this would manifest in terms of lower project costs, thereby increasing the bonuses.
But workers aren’t that keen on putting such faith in the Engineers and project managers, who would have an incentive to try to keep as much of this ‘under budget, ahead of schedule’ surplus. It requires transparency, and it is likely that the Unions do not have fiscally capable individuals in place to detect such screw-overs. They could always hire me, I guess.
