Arizona's New Housing Crisis: No Workers

There’s a whiff of 2005 in the Arizona air. While D.J. Hughes hunts for carpenters to join his team at a Phoenix-area house-framing company, competitors are tracking down his workers at building sites and offering them more money. “Everybody is trying to pull crews from everyone,” says Hughes, a project manager for J.L. Baugh Construction in Gold Canyon, Ariz., who admits to attempted talent raids on rivals. “I’ve been doing this for a quarter of a century, and this is the biggest shortage of skilled laborers I’ve ever seen.”

Cash-wielding investors are driving demand as they snap up properties, and Arizona’s builders are having trouble finding skilled crews. Building permits are at an almost four-year high, creating a dearth of framers, roofers, and masons, many of whom moved elsewhere when work dried up. Laws aimed at curbing illegal immigration added to the shortage by pushing seasoned hands out of state. After declining by more than half since 2006, construction jobs, a category that includes residential, commercial, and government projects, jumped 9.3 percent in May from a year earlier, to 120,300, according to Arizona’s employment statistics office. Nationally, construction employment rose 0.4 percent. The average hourly wage for construction workers in Arizona increased to $20.72 from $19.53 a year earlier.

Arizona was among the areas hit hardest by the U.S. housing crash. Home prices in April were down about 47 percent from the peak in 2006, exceeding the 31 percent decline nationally, data from CoreLogic (CLGX) show. The state ranked second in the rate of foreclosure filings in May, according to RealtyTrac. “The industry is so wound down that it’s hard to flip the switch on and build as many homes as there is demand right now,” says Ben Sage, director of the Arizona region for Metrostudy, a Houston-based firm that tracks new construction. “The subcontractors are scrambling for workers.”

The inventory of previously owned houses for sale in Phoenix dropped 50 percent as of June 1 from a year earlier, according to a report by Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W.P. Carey School of Business. The tight supply helped push the median price for single-family homes up 32 percent to $147,000 in May. Purchases of new houses surged 57 percent in May from a year earlier, according to the report. The median price for new homes rose 3.7 percent, to $224,759.

Downtimes of a few days at construction sites are becoming more common as builders wait for crews to finish other jobs before starting work, according to Reed Porter, chief executive officer of Trend Homes in Gilbert, Ariz. The average time to complete a house in the area is four months, twice as long as it took in February, says Jim Belfiore, president of market researcher Belfiore Real Estate Consulting in Phoenix. “A lot of builders were caught on their heels,” Belfiore says, surprised by “how rapidly the demand situation turned around.”

Arizona, which depended on workers from Mexico to assemble many of the houses commissioned during the boom, has new laws that will make it more difficult to lure back skilled immigrants, says Magnus Lofstrom, a policy fellow at the San Francisco-based Public Policy Institute of California. Arizona’s population of unauthorized immigrants aged 18 to 64 fell by about 17 percent as a result of the Legal Arizona Workers Act, according to a study Lofstrom co-authored. The law, which took effect in January 2008, requires companies to check employees’ legal status with a national verification database. A provision of a 2010 law makes it a state crime to be in the U.S. illegally. On June 25 the Supreme Court invalidated that part of the law while upholding the provision that requires police officers to check immigration status when they arrest or stop someone and have “reasonable suspicion” that the person is undocumented.

Hughes, the Gold Canyon project manager, last month called three former foremen who returned to Mexico four years ago when local construction activity slowed. He persuaded one of them, who has proper documentation, to come back. The others, who he says also have documentation, are hesitant because they don’t like Arizona’s immigration laws and are worried that the market will fizzle out. Hughes wonders how long the demand for workers will last. “It’s busy,” he says. “But everybody still has their hands behind their back, crossing their fingers that this continues.”

The bottom line: After declining by more than 50 percent since 2006, Arizona construction employment rose 9.3 percent in May.

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Illegal Workers in Alabama: The Exodus

Number of buildings in Tuscaloosa that require reconstruction: 5,362 Julie Dermansky/Redux

By Margaret Newkirk

When the city of Tuscaloosa, Ala., begins rebuilding more than 5,300 homes and businesses damaged or destroyed by an Apr. 27 tornado, it may find itself missing many of the people it needs to put the city together again. That’s what Ever Duarte, head of the city’s Hispanic soccer league, predicts after losing a third of his teams in a week. Tuscaloosa County’s 6,000-strong Hispanic population—including roofers, drywallers, framers, landscapers, and laborers—is disappearing in anticipation of a new law aimed at ridding the state of illegal immigrants, which takes effect in September. “They’re leaving now, right now,” says Duarte, 36, during a pause in a pickup soccer game. “I know people who are packing up tonight. They don’t want to wait to see what happens.” Two weeks ago, he says, his league had 12 teams. “Last week, it was eight.”

Governor Robert Bentley, a Republican, signed the 72-page measure on June 9, calling it “the strongest immigration bill in the country.” Alabama became the fifth state to enact new, stricter sanctions against undocumented workers, following Arizona, Utah, Indiana, and Georgia. Proposed laws failed this year in 22 states, including Colorado, Florida, Kentucky, and Louisiana.

Alabama goes further than most states in criminalizing assistance to illegal immigrants. Hiring, housing, and providing transportation to undocumented residents will be state crimes. Employers will be required to use the federal E-Verify system to confirm workers’ eligibility. The law also charges police and school officials with checking residency status.

About 55 miles southwest of Birmingham, Tuscaloosa is home to the University of Alabama and its storied Crimson Tide football team. The tornado roared through the city, killing 43 and leaving a path of rubble three-quarters of a mile wide and six miles long. The immigration law threatens to unleash its own havoc as the city tries to rebuild. “Hispanics, documented and undocumented, dominate anything to do with masonry, concrete, framing, roofing, and landscaping,” says Bob McNelly, a contractor with Nash-McCraw Properties. “There are very few subcontractors I work with that don’t have a Hispanic workforce.” Opponents of the new law say those who want to drive out illegal immigrants are willfully ignoring an undeniable truth: Like it or not, undocumented workers are essential to the economy, taking on hard, low-paying jobs Americans often won’t do, even in times of high unemployment. Rebuilding, McNelly says, will be slower and more expensive without them. “It’s not the pay rate. It’s the fact that they work harder than anyone. It’s the work ethic.”

The law’s backers say it is intended in part to create jobs for citizens of Alabama, where unemployment was 9.6 percent in May, a half-point higher than the national average. “This will put thousands of Alabamians back in the workforce,” state Senator Scott Beason, a Republican from Gardendale, said at the law’s signing on June 9.

So far, that hasn’t happened. Some contractors say that as immigrants move away, employers will have a hard time finding enough legal Alabama residents with the skills and desire to take their place. “There are plenty of people capable of working, if they’d just get off their butts and do it,” says Rich Cooper, a contractor with Bell Construction in Tuscaloosa.

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Worker’s Career Shift Shows Demand for Young Employees

May 27, 2011, 10:32 AM EDT By Craig Torres

May 27 (Bloomberg) -- Chris Housand dumped his job as a forklift operator in January to seek skills that would make him valuable over a lifetime.

“Being 22 and with two kids and a wife I had a lot of weight on my shoulders,” said the Tarboro, North Carolina, resident. Warehouse work “was pretty much a dead-end job.”

He enrolled in electrical-lineman school at Nash Community College in nearby Rocky Mount. After graduation on May 6, he was hired into a four-month paid internship program that holds the promise of a permanent position, at a time when 16.1 percent of men in his age group are jobless.

Housand is catching a wave of demographic change that’s likely to benefit younger workers. A generational replacement cycle is taking hold as companies such as General Electric Co., Norfolk Southern Corp., Boeing Co., American Electric Power Co. Inc. and Dominion Resources Inc. all try to hire skilled younger staff to prepare for a wave of retiring workers.

“In the next five to 10 years well over 100,000 utility sector jobs will be available for refilling,” said Bob Powers, president of utilities at Columbus, Ohio-based American Electric Power, where the average workforce age is about 49. “It is an opportunity and a challenge.”

Unemployment for 20- to 24-year-olds peaked at 17.1 percent in April last year, almost 10 percentage points above the 7.2 percent low in May 2007 during the last expansion.

Saving Seniority

Despite the 9 percent national unemployment rate in April, labor scarcity may be the longer-term challenge for U.S. corporations, said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania.

The question is whether it will be masked by overall jobless rates, which could remain high for years as companies absorb the skilled labor pool and leave the rest behind.

Companies could start to bid aggressively for a limited group of skilled workers, building inflation pressures with the unemployment rate as high as 7 percent, according to economists at Barclays Capital Inc. in New York. Fed officials currently estimate labor supply and demand are in balance around a 5.4 percent unemployment rate.

“The Federal Reserve needs to be very sensitive to this and vigilant,” said Zandi. “We may be bumping up against constraints in the labor market a lot faster than we think if these companies aren’t able to attract and train quickly enough.”

As demand collapsed in 2008 and 2009, corporations cut junior staff and tried to preserve senior personnel. Unwittingly, they “created a major problem as they try and plan for the next five to 10 years,” said Joe Carson, director of global economic research at AllianceBernstein LP in New York.

Growth Agenda

“U.S. companies not only have a growth agenda now as earnings and liquidity improve, they also have a human capital replacement cycle they haven’t seen in the past 20 to 30 years,” Carson said.

The number of workers 55 and older rose to 31 million in April 2011 from 19.2 million in April 2001. By contrast, people in the labor force between the ages of 20 to 24 grew less than 1 million to 15.2 million from 14.6 million in April 2001. The entire U.S. labor force stood at 153.4 million last month, up just 6.9 percent since 2001.

“When I sit down with a business, and ask, what are your biggest challenges over the next five years, almost without exception I hear that one of them is the demographics of the workforce,” said Thomas Schneider, founder of Restructuring Associates Inc., a Washington firm specializing in labor productivity. Still, he said, “We are under-investing in the highest skill, blue-collar and technical jobs.”

More Interns

Companies such as Chicago-based Boeing, where the average age is in the “high 40s,” according to senior vice president Rick Stephens, are trying to change that.

The world’s second-largest aircraft maker will hire 1,500 to 2,500 engineers this year, some right out of college, and is boosting its intern program to 1,100 from 900 in 2009. Around 2 percent of Boeing’s 164,495 workers retire each year, and that number is likely to increase, Stephens said.

“Firms will increasingly find that the outflows of retiring workers are bigger than the inflows of younger workers,” said Nicole Maestas, a labor economist at the RAND Corporation, a Santa Monica, California-based policy group. “Nobody is immune to these basic demographic facts.”

GE doubled its U.S. college hiring program to 1,278 in 2010. The world’s biggest maker of jet engines, gas turbines, and medical-imaging equipment scouts some 40 U.S. universities to replenish its pipeline of engineers and future managers and spends $300,000 per student in its two-year trainee program.

‘Big Swings’

“We can afford to take some big swings, and investing in people and growing talent is what we do best,” said Steven Canale, manager of global recruiting and staffing for Fairfield, Connecticut-based GE. “The workforce is getting older.”

The median age for the U.S. population climbed to a record 37.2 in 2010, according to the Census Bureau, and the workforce in several industries is even older.

The median age in aerospace manufacturing was 47.9 in 2010, meaning half the workforce in Boeing’s industry was older than that; in electrical power generation it was 45.4; and in rail transportation it was 46.5, according to Bureau of Labor Statistics data.

Norfolk Southern let its staff shrink through attrition and retirement during the recession that began in December 2007. The economy has since expanded for seven quarters, and demand for natural resources and exports has snapped back.

Coal Facility

The Norfolk, Virginia based railroad, which owns the largest coal-export facility in the northern hemisphere, hired 2,800 people last year and has plans to hire 4,000 this year, according to Cindy Earhart, vice president of human resources.

One goal is to rebuild the ranks of young managers. The company is seeking about 300 college graduates to replace the 6 percent of 4,800 managers who will retire this year.

Companies such as Dominion Resources in Richmond, Virginia, are also looking for young “gray-collar” workers for jobs that require both physical ability and technical knowledge. Matt Kellam, supervisor in charge of strategic staffing at Dominion, says finding a supply of linemen and engineers is a priority.

“A good number of our lineman are 45 years and older,” Kellam said, adding that community college graduates and military veterans can provide the company with the skilled technicians it needs.

The firm has about 48 people in its lineman training program. Starting salaries are about $33,000 in the industry, Kellam said, and can rise to $80,000 or more with overtime for a journeyman.

Dropout Rates

At Nash Community College, instructor Bob Schubauer says about 30 students enroll in his lineman classes each semester. Rigorous climbing in the rain, cold and heat, and demanding engineering math, usually cut that number by two-thirds by the time his 16-week certification program is over.

In an 8:30 a.m. class, Schubauer barks orders to his students after he asks them to diagram an electrical network on the white board.

“I don’t want any confusion, I don’t want any assumptions. I want these diagrams to speak for themselves,” he says. “I don’t want to see any inconsistencies.”

Housand approaches the board and begins to draw how he would configure a bank of three transformers to go from high to usable voltage. Some of the diagrams the students draw involve about two dozen calculations.

Schubauer wants the students to know the theory behind what they are handling even though most linemen head into the field with detailed plans. The cost of a mistake is blown transformer, a power outage, injury or death, he said.

Cold Climbing

An hour later, Housand and his classmates are cinching a BuckSqueeze, a climbing belt made by Buckingham Manufacturing Co. in Binghamton, New York, around 40-foot poles, then inchworming their way up. His internship at the City of Rocky Mount lasts for 16 weeks. Four other classmates also found work.

“It is very reasonable to expect, if we have an opening, for Chris Housand to be hired unless another applicant has a lot more experience,” said Darryl Strother, Rocky Mount’s electric superintendent.

Housand worked at a cotton gin right out of high school. Now, he calls himself a “linegineer,” his term for a job that requires physical stamina and engineering knowledge.

“We do not have a labor shortage in America, we have a skill shortage,” said Boeing’s Stephens. “The key is will there be enough people to meet our needs?”

--Editors: Anne Swardson, Christopher Wellisz

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomgerg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Bill Would Limit Workers' 401(k) Plan Loans

May 18, 2011, 11:01 AM EDT By Bloomberg

(Updates with data on number of loans permitted in plans starting in the fourth paragraph.)

By Margaret Collins

May 18 (Bloomberg) -- Workers will be limited in tapping their 401(k) retirement plans for loans under legislation two senators plan to introduce today that’s designed to counter the erosion of retirement assets.

“During these difficult economic times, we are increasingly seeing 401(k) funds being treated as rainy day funds,” Senator Herb Kohl, a Wisconsin Democrat, said in a statement obtained by Bloomberg News. “A 401(k) savings account should not be used as a piggy bank for revolving loans.”

Kohl, 76, who’s chairman of the Senate Special Committee on Aging, plans to introduce the “SEAL 401(k) Savings Act” with Senator Mike Enzi, 67, a Wyoming Republican. The bill would reduce the number of loans workers may take from a 401(k) and give participants more time to repay after losing a job. It will allow savers to contribute to their plan after taking a hardship withdrawal and ban debit cards linked to the accounts, according to Joe Bonfiglio, a spokesman for Kohl’s aging committee.

The Senate bill would limit the number of outstanding loans for each participant to three, Bonfiglio said. Employers would have the option to reduce the number for their plans. There is no rule right now limiting the number of loans workers may take and it varies by company, Bonfiglio said.

Leaving a Job

Almost 28 percent of participants in 401(k)-type accounts had an outstanding loan at the end of 2010, which is a record, according to a study released today by benefits consultant Aon Hewitt, a unit of Chicago-based Aon Corp. The average outstanding loan balance was $7,860 and 58 percent of plans permit participants to have two or more loans at a time, said Aon Hewitt, which used a database of about 2 million employees in 110 plans.

“The big risk with loans is that participants leave their job,” said Alison Borland, head of retirement strategy for Aon Hewitt. Most 401(k) plans require employees to repay loans in full when leaving a job, usually within 60 days, said Borland, who’s based in Nashville, Tennessee. Almost 70 percent default, Borland said, so the unpaid funds get counted as taxable income and may add to the burden of a jobless worker.

Depending on the rules of an employer’s 401(k) plan, workers generally may borrow from their retirement account for any reason and pay the loan back with interest. About 89 percent of participants were in plans offering loans in 2009, according to the Washington-based Employee Benefit Research Institute, which has a database of 21 million 401(k) savers.

Payroll Deductions

Workers generally may borrow as much as 50 percent of their vested account balance up to a maximum of $50,000, according to the Internal Revenue Service. The loan must be repaid within five years, unless the money was used to buy a primary home.

Employees can repay the loan through payroll deductions and can continue to make contributions to their retirement accounts, Borland said. More than 80 percent of those with a loan do continue to save, she said.

“For these workers who take a loan, repay it and continue to save, they haven’t done significant damage to their retirement prospects,” Borland said. “They are at significant risk if they change jobs or lose their job.”

The average interest rate on loans from 401(k) plans is the prime rate plus 1 percent, currently 4.25 percent, David Wray, president of the Profit Sharing/401k Council of America, said in an e-mail. The median loan origination fee in 401(k) plans is $75 and the median annual loan maintenance fee is $25, according to the council, a Chicago-based non-profit association of employers that sponsor retirement plans.

Tax Penalty

For workers who lose their jobs before repaying a loan, the bill would let them pay down their balances into an individual retirement account before filing their taxes for that year. That way the saver doesn’t incur a withdrawal tax penalty on those funds, Bonfiglio said. The IRS and Treasury Department would need to issue guidance on how the process will work, he said. About $663 million of 401(k) loans in 2008 were deemed taxable distributions, according to a December report by the Department of Labor.

The flexibility to take loans or withdrawals is an attractive feature of the accounts for some participants, said Sarah Holden, senior director of retirement and investor research for the Investment Company Institute, a mutual-fund trade group based in Washington.

“Knowing that you can borrow the money if you need to frees people to participate in the plan and contribute more,” she said.

Hardship Withdrawals

A 401(k) plan’s terms also may let individuals take a hardship withdrawal that doesn’t have to be repaid if they demonstrate a financial need such as medical or funeral expenses. That money generally is included in an employee’s income for tax purposes and may trigger an additional 10 percent tax penalty, according to the IRS. Employees also are generally prohibited from making contributions to their account for at least six months after taking the withdrawal, the IRS said.

The legislation would allow participants to continue to contribute during the six months following a hardship withdrawal because the loss of employee and company matching contributions during that period can further erode retirement savings, according to Kohl’s statement. Kohl said on May 13 that he won’t seek re-election next year.

The bill also would ban products that promote so-called leakage of savings including 401(k) debit cards, which may carry high fees, Bonfiglio said. While use of 401(k)debit cards is not widespread, they have been offered by companies in the past, he said. Using the card essentially triggers a loan.

--Editors: Rick Levinson, Rick Green.

To contact the reporter on this story: Margaret Collins in New York at mcollins45@bloomberg.net.

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net.

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