2004 STATE OF THE INDUSTRY REPORT: Labor Rebounding

Though the 5.4-percent unemployment rate (as of August) represents a slower job market than normal, it hasn’t challenged the landscape industry.

In fact, a higher unemployment rate means a larger labor pool for crewmember hires. Consequently, the labor shortage has become less of an issue. Last year, 50.4 percent of contractors surveyed noted that a lack of quality laborers was among their top three most challenging business issues and 53.1 percent expected the same to be true for 2004. This year, however, when asked to rate their level of concern regarding certain issues, contractors ranked the labor shortage No. 10 on a list of 16 issues with an average rating of 4.8 on a scale of one to 10.

Though labor has fallen from the No. 1 business concern in 1997 and 1998 to the No. 10 business concern in 2004, there are aspects of labor that contractors still find challenging.

MIDDLE MANAGEMENT DEFICIENCY. The main labor crunch this year seems to be at the middle manager level, mainly on the maintenance side of the business, as opposed to the crewmember end of the pool.

"There’s a hole in the talent in the job market when it comes to second-line management on the maintenance side," says Bill Leidecker, president, Five Seasons, Reynoldsburg, Ohio. "A lot of the people who are coming into the job market go to the design/build side because they think it’s sexy and they can make a lot of money, but they don’t realize that you can come out on the maintenance side and have a management opportunity in a fairly short period of time."

To compound the situation, some contractors with middle-management frustrations find that the educated candidates who are applying for these positions have experience in the wrong areas or aren’t quality applicants. "With high unemployment rates in our area, there is an abundance of applications coming in, but I’ve never been a fan of hiring someone who’s been working outside the industry for 10 or 15 years and is looking for a job out of desperation," says Bob Grover, president, Pacific Landscape Management, Hillsboro, Ore. "There’s definitely a wider labor pool, but there’s not always a high success rate within that group of people."

This trend of struggling to find account manager-level employees is continuing from 2003 when 28.2 percent of contractors reported that a lack of middle management was a challenge and 26.5 percent predicted that it would also cause problems this year. To combat the situation, Leidecker and other contractors in the industry are working with universities to promote maintenance management as a career and using internship programs to develop interest in the industry.

COMPENSATION CUTBACKS? While productivity is up and unemployment rates are looking better nationally and in individual states, one area to which employees are paying close attention is their wallets. Mark Zandi, an economist with Economy.com, notes that a fully employed economy is consistent with a 5-percent unemployment rate and a stable labor force participation rate.

Considering this, the good news is that the United States is on pace to reach the "neutral" 5-percent rate by late 2006, and inflation is expected to remain insignificant for the time being, according to Zandi. The bad news for employees – is that "holding off inflation is a function of job market slack and limited compensation gains." In other words, as long as unemployment stays above average, fewer people are putting money into the economy, which means that employers can’t always afford to increase their employees’ pay.

This stagnation in wages is noticeable within the green industry.

As a group, the green industry continues to grow every year and with more sales often comes increased compensation for employees. From 1999 to 2002 when industry sales increased due to customers staying closer to home, especially after 9/11, green industry employees’ wages followed suit, rising 2 to 12 percent per year, depending on the position. However, 2003 showed a decrease in wages across entry-level and foreman positions for the first time in five years. The 2004 Lawn & Landscape research shows further decreases in average entry-level wages.

On average, wages for entry-level mower operators fell from $8.70 in 2002 to $8.31 in 2003 and again to $8 this year. This average annual decrease of 4.1 percent is slightly higher than the drop in entry-level lawn care technician pay, which decreased an average of 3.45 percent per year in 2003 and 2004. Foreman compensation dropped 7.6 percent from 2002 to 2003, but recovered this year with an 11-percent gain.

Though most contractors report that wage wars with other businesses is not a problem, some note that increasing pay for project managers has created an incentive for individuals in those management positions to stick around. Other contractors who said they regularly increase their employees’ wages comment that they do this as a result of cost-of-living hikes, which can range from 3 to 10 percent annually, depending on the region.

RISING RATES. Beyond working hard to provide reasonable paychecks, green industry contractors are facing other compensation concerns in the form of rising insurance rates. According to Lawn & Landscape research, contractors rank workers’ compensation and health insurance costs as their No. 2 and No. 4 concerns, respectively, for 2005. This is no surprise, considering that rates in both areas continue to increase.

According to the National Coalition on Health Care, the premiums charged for job-based health insurance rose by 13.9 percent in 2003, exceeding previous rates of growth. All types of plans, including HMOs, PPOs and POSs demonstrated double-digit increases. In the green industry, contractors across the country report increases ranging from 5 to 20 percent. This range is consistent with numbers reported last year, and most contractors expect increases to continue into 2005 and beyond.

As a result of rising rates, 9 million fewer Americans received health insurance coverage through their employers in 2003 than in 2001, according to Inc.com. The site references a study by the Center for Studying Health System Change, which indicates that the ability to access employer-sponsored coverage through one’s own or a family member’s job dropped from 80.4 to 78.2 percent.

For the green industry, a recent Lawn & Landscape online poll indicates that only 43 percent of companies offer health insurance to their employees. This is down from 2001 when 71 percent of contractors said they paid at least a portion of the premiums, and 31 percent of those paid 100 percent. Now, only 14 percent of respondents say they pay 100 percent of their employees’ health care costs, while the remainder use an employee contribution arrangement to offset rising rates.

"We used to pay 100 percent of health care, but because of rising costs, we now pay 50 percent and the employee covers the rest," says Joe Goetz, president, Goetz Landscape & Irrigation, Centerville, Minn., whose rates have consistently increased about 8 percent per year. "We had a meeting about it and asked our employees whether they would rather have health care that isn’t as good and still have us pay for it or keep the coverage in places but have everyone contribute to the cost. They chose to contribute and as our budget comes around for 2005 we expect another 8-percent increase that we’ll have to work with."

According to the National Compensation Survey released in March 2003, employers offering medical plans covered an average of 82 percent of the cost of single coverage, while the employee paid the remaining 18 percent. For family coverage, the split was 70 percent covered by the employer and 30 percent by the employee. In the service industry in particular, employers’ shares were slightly lower at 81 percent for single coverage and 68 percent for family coverage, with the employee paying the balance.

In accordance with these numbers, a Lawn & Landscape online poll shows that, of contractors who pay less than 100 percent of employees’ health insurance costs, 35 percent pay between 51 and 99 percent of the expenses. Moreover, some contractors who only cover a portion of expenses have structured incentive programs whereby the employer’s share of the cost increases with the employee’s tenure at the company.

"This year, we were really excited to announce that for employees with us five years or longer, we’ll pick up 97 percent of their health insurance to reward them," says John Gachina, president, Gachina Landscape Management, Menlo Park, Calif. "We pick up about 80 percent of the cost for our other employees."

Gachina and other contractors worked closely with their insurance providers to keep premium increases to a minimum this year. Similarly, other contractors switched providers altogether to find the best rates and keep from having to drop coverage. "We pay 100 percent of our employees’ heath insurance costs and if we were in a situation to cut back on benefits, we’d move to employee participation first," says David Snodgrass, president, Dennis’ Seven Dees, Portland, Ore. "Cutting coverage would be the last resort because everyone needs health insurance, but there can be some participation that can really help. We’ve taken a close look at our insurance coverage and have switched providers twice in the last five years because rates are going up and coverage is coming down. This year, we saw an 8- to 10-percent increase, but we were able to move to another carrier and get the same great coverage."

For the time being, Snod-grass’s approach may remain the best option for contractors to keep their insurance costs reasonable. The same goes for workers’ compensation insurance, which remains a major concern going into 2005. When asked to rate their concern regarding workers’ compensation costs on a scale of one to 10, contractors in all regions of the country gave it an average ranking of 6.2 – second only to fuel prices. Some contractors have reported increases from 30 to as high as 60 percent.