Engineering Gxts and Production Economics, 7 ( 1982) 13- 18 Elsevier Scientific Publishing Company, Amsterdam - Printed in The Netherlands

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Norman Boyd

In the preceding article in this series, published in Volume 6, a method was sug- gested for comparing erected costs of chem- ical and associated plants in different coun- tries. The international cl>mparison given in Table 4 (p. 273) was based on national averages for materials, labour and produc- tivity, but there can be significant varia- tions within each country for each of these factors. In earlier articles dealing with ma- terials, indications were given of the pos- sible price ranges relative to the various national averages. Before considering the variations in labour costs for each coun- try it may be useful to list the cost elements within the hourly labour cost, say in the construction industry, as follows:

( 1) Basic hourly wage ; (2) Regular bonuses and allowances,

incl. overtirne premiums, productivity and proficiency payments, and payments for special conditions;

(3) Payment for days not worked (Pub- lic holidays, annual and sick leave, etc.);

(4) Statutory social welfare costs (e.g. Insurances for health, unemployment, re- tirement and welfare pensions, family al- lowances);

(5) Voluntary social welfare costs (e.g. Supplements to statutory social welfare schemes, can teens, medical facilities, housing or other accommodation);

(6) Other bonuses (paid at irregular times); (7) Employers’ insurances in respect

of employees; (8) Payments in kind;

(9) Payment for travel time to, from and on site ;

(lo) Costs of transporting labour to, from and on site;

(11) Costs of recruitment and termina- tion;

( 12) Costs of training; ( 13) Special taxes on, and subsidies for,

labour. Many of the cost elements occur over a time period other than hourly, and the hourly figure is obtained by dividing the periodic cost by the number of hours worked in that period. As examples, production bonuses may be calculated weekly, public holidays and annual leave arise at irregular intervals, and insurance premiums are prob- ably met annually.

Average hourly earnings normally com- prise items 1 and 2, but item 3 is also in- cluded in the statistics published for some countries. Although the list refers specif- ically to the construction industry, it would apply also to most of the manufacturing industries with the exclusion of items 9 and 10.

OCCUPATIONAL WAGES AND EARNINGS

The average hourly earnings for an indus- try represent a weighted average of the earnings in the various occupations within that industry, but the statistical data are generally obtained on a company basis, without any occupational breakdown. This means that it is difficult to relate directly

0167-188X/82/0000-0000/$02.75 o 1982 Elsevier Scientific Publishing Company

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any published data on occupational eam- ings ta industrial earnings. The fnternational Labour Office publish in the second quarter each year in their “Bulletin of Labour Sta- tistics” f I ] the re:sults of an inquiry in the previous &tuber into hourly wages and earnings of adult wage earners in se- lected occupations in about 85 countries. Unfortunately there are some notable omis- sions, such as France, Italy, Japan and USA. The data apply to whole countries or to one or more cities or regions within a cocn- try, and vary from rn~n~urn wage rates, through average and prevailing rates, to hourly earnings. The occupations total 41 in all, so the cover is not very wide and include: manufacture of chemicals:

17 Mixers 18 Labourers, unskilled

Iron and Steel basic industries: 19 Melters 20 Labouren, unskihtid

Manufacture of machinery :

2 1 Fitters (assemblers) 22 Iron moulders (hand, bench) 23 Pattern makers (wood) 24 Labourers, rlnskilfed

Cor&IIction: 26 Bricklayers 27 Structural steel erectors 28 Cement finishers 29 Carpenters 30 Painters 3 1 Plumbers 32 Electrical fitters 33 Labourers, unskilled Further data on occupational wages and

earnings are available for Canada (Montreal and Toronto only) [2] ) Denmark [3J ) Japan. 141, Norway [5] and U.K. /63.

All the above data show that the relation- ships of earnings between the vatiuus oc- cupations or trades and between sktied and unskilled vary appreciably between one country and another, and sometimes

between different regions within a coun- try. In the Netherlands, tradesmen’s rates vary only k 2% about the national average, and the unskilled rate is about 95% of the skilled rate, whereas in the U.K. the corn- parable figures are & 1’2% and 80% respec- tively* Such variations justify, wherever possible, the compilation of composite rates for particular projects, based on known or anticipated “weightings” for the various occupations.

REGIONAL VARfATIONS IN WAGES AND EARNINGS

For most countries published statistics of regional wages or earnings are available, often appearing in year books and hence slightly out-dated. However, changes are generally slow in taking effect and the rel- ative positions of regions can be assumed to remain substantially unaltered over sevm eral years. As a general maxim it may be taken that the earnings of workers ifl and around capital cities and large conurbations are likely to be higher than elsewhere in a country. However, this does not apply when local labour is insufficient to meet demands and imported labour has to be employed. This will be dealt with more fully later in this article.

A general indication of regional varia- tions in earnings in the constructian in- dustry is @en below for various countries and also the sources of more detailed in- formation on this and other industries. Unless otherwise stated, all variations are relative to the national averages. AlNR& Minimum weekly rates (excl. overtime) in Aptil and October each year are pub- lished in “Wage Rates - Australia” [?I fur the various States. For construction these range from about +3% in N,S,W. and Victoria t0 -6% h Western Australia and Tasmania. F&ures are alau available for

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“All Manufacturing” and for various indus- trial groupings. Regional analyses of total hourly earnings in some industries are also published annually in “Labour Statistics” [81. Belgium Average gross hourly earnings for various industries in three regions, region Flamande, region Wallone and rggion Bruxelloise are published by Eurostat in “Hourly Eamings- Hours of Work” [9] and appear in “Annu- aire de Statistiques Regionales” [ 1 O] . For construction the differences between the three regions in both October 1979 and October 1980 were less than 2%. Canada The only regional analysis published in “Employment, Earnings and Hours” [ 111 is for manufacturing. This analysis is by Provinces (Table 19) and by urban areas (Table 2C). For construction, occupational earnings are published in the “Bulletin of Labour Statistics [ 11 for 4 major cities and in “Engineering - News Record” [ 2j for Montreal and Toronto. From these it can be dedu cc:! that Montrer,l and Winnipeg earnings rates are about 7% below, and Vancouver rates 7% abrjve national average, with Toronto at about the national average. Denmark Wages in various imlustries and occupations given in “Statistisk Wrbog (Statistical Year- book) [3 J are undser 3 heads, Copenhagen, Rest of Denmark #nnd Denmark. For con- struction, average hourly earnings in the Copenhagen area are about 12% above the national average, an C about ~Yo below for the rest of Denmark. West Germany Regional analyses of hourly earnings in various industries are @en in “Liihne und Gehater, Reihe 2.1” [ 12 ] published monthly and in Eurostat’s “Hourly Earnings-Hours of Work” (91. For construction, hourly earnings in April 1980 ranged from 23% above national averages in the Hamburg area to 10% below in Saarland.

Italy Regional analyses of hourly earnings in various industries are given in “Annuario Statistic0 Italiano” [ 13 ] and in “Hourly Earnings-Hours of Work” [9]. For con- struction, hourly earnings in mid-1980 ranged from +7% in Turin to -7% in the lowest paid areas. Japan Both regional and occupational analyses of earnings in various industries are given in the “Year Book of Labour Statistics” [4] for 47 prefectures. For construction, average hourly earnings for males in 1978 ranged from about 17% above national average in Tokyo to about 25% below in the lowest paid areas. Japan is a particular pVQm-lf-- _,.Lsr1rya, where the relationship or’ eam- ings in the different trades and between skilled and unskilled varies widely from one region to another. Netherlands A regional analysis oi earnings in various industties is given in the “Regionaal Sta- tistisch Zakboek” [ 143 and in “Hourly Earnings--Hours of Work” [9] . The regions listed in the latter are Noord-, Oost-, West-, and Zuid-Nederland. For construction, aver- age hourly earnings in April 1978 and April 1979 ranged from +4% in West-Nederland to about -2% in Noord- and Zuid-Nederland. The Yearbook [ 141 has a more extensive list of areas and cities, 20 in all and, in Oc- tober 1976, Rotterdam had the highest earnings at 7% above national average. Norway It would appear that the only regional anal-w ysis of hourly earnings published is for adult males employed by special trade con- tractors. It appears in “Lonnstatistikk” (Wage Statistics) [ 5 J under two headings, “Oslo” and ‘6Remainder”, and the Oslo rates in 1979 and 1980 were about 15% higher than those for the remainder of the country. It would appear reasonable to assume the Oslo rates are about 12% above national averages and the remainder of

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the coun.try about 3% OXBOW. Sweden In “Loner, De! 2”’ (Wages, Part 2) [ 15 I a regional breakdown of hourly earnings for adult worker; in construction is given for the three metropolitan areas of Stock- holm, Gothenburg and Malmo and for the rest of Sweden. In the 2nd quarter of 1980 the rates for men are 10% above national averages in Stockholm, 2% above in Gothen-

urg and 3% below in the rest of the country, with Malmo on the national average. U.K. Regional analyses for earnings in various industries are now published annually in the “New Earnings Survey” [ 61 which gives the findings of an inquiry in Apr:il of the same year. They are published also in “Hourly Earnings-Hours of Work” [ 91. For construction, adult males’ earnings in April 1981 varied from 6% above national averages in both North and South-East England to 7% below in Wales and 11% below in Northern Ireland. U.S. A. Although “Employment and Earnings” [ 1611 gives very detailed regional analyses of earn- ings and hours by States and by selecte:d areas within States, they are confined to production workers on manufacturing pa:y- rolls. They are not broken down to indi- viduti industries and the construction indus- try is omitted. In October 1981 average hourly earnings in manufacturing ‘ranged from $6.11 in Mississippi to $10.86 in Michi- gan and $1.2.65 in Alaska. There were lar,ge variations within each State and the highest, excluding Alaska, occurred in Saginaw (Mich.) where the rate was $12.54.

Engineering - News Record [ 21 each month gives wage rates (defined as “Total

nion base + fringes”j for various skilled unskilled occupations in 20 cities. From

ese it can be assumed that average hourly ~ar~i~~ in these cities range from about 25% above national averages in San Francisco to about 20% below in Dallas. Five of the

cities are iu the southern States and their rates average about 85% of the national averages,

LOCAL VARIATIONS

The occupational and regional variations from national average hourly earnings and hourly labour costs which have been ex- amined above can, in the main, be quan- tified using published data. However there are other var!ations for which there are few, if any, statistics available. In the con- struction industry these variations occur at individual sites and it is possible to do little more than discuss in general terms the reasons why they arise and what they might cost. Returning to the list of cost elements included in the hourly labour cost, the items subject to substantial fluc- tuations are numbers 2, 5, 6, 9 and 10. The two main reasons for fluctuations are the size of the project and its location. Size, in this context, means the demand for labour relative to its supply from local or near local sources, thus what would be a small project in a well-populated area of the U.S.A. could be a large project in Norway. For labour to be attracted from other areas, additional bonuses may have to be paid and the costs of transportation and travelling time will rise. If the project !s large and remote from populated areas, accommodation will have to be provided adjacent to the site, together with the catering anti other personnel to staff it. Workers living away from home may be granted additional leave together with free trans- port between horn:, and site.

The effect of increased bonuses and al- lowances on average earnings can be as- sessed accurately only if the ratio of basic wages to bonuses in the national averages is known, and this is rarely the situation. Howeve:: where it is necessary to pay high bonuses to attract and keep labour, these bonuses can amount to as much as the basic

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wages and in such cases the average hourly earnings are likely to be 50% to 75% above the national figure. For daily travel, the employer will either meet the cost of fares or, in lieu, provide free transport and he will probably have to pay for time spent in travelling at the basic rate at least and possibly higher. With a maximum of, say, 3 hou.rs travel per day, the costs could amount +f? 40% of the average hourly earnings. When accommodation has to be provided at site, the costs of providing, maintaining and staffing a camp, including the provision of food, can double the hourly labour cost. The additional leave for workers living at site may be twice as much as the normal annual leave.

The effect on the hourly labour cost of all these increases depends to some ex- tent on the proportion which it bears to average hourly earnings. In countries where the proportion is around 1.3: 1 such as Canada, Denmark, Japan, Norway, U.K. and U.S.A. the effect is fairly direct. The resultant hourly labour costs in extreme cases can be about four times the national average. In countries such as Belgium and Italy , wh,ere the ratio is about 2: 1, the effect is not quite so severe since the statutory social welfare costs, which form a large part of the employers additional costs, do not increase pro-rata with increases in hourly earnings.

Two points regarding all these compar- isons have to be stressed. The first is that thle references are all in respect of patriate labour. If expatriate labour is used, the hourly labour costs can be very different to those quoted. The second point is that an hourly labour cost is not the same thing as a man-hour rate. This latter rate is often used by contractors and others for job ac- counting purposes and includes, in addi- tion to the hourly labour cost as defined herein, the costs of site supervision and of small tools and consumables. Expen- diture on supervision, which includes tech-

nical and clerical staff on site, can amount to f of the labour cost, and for small tools, etc. up to 15% of the labour cost depending on what items are included.

VARIATIONS IN PRODUCTIVITY

Although national productivity figures were used in the previous article to com- pare erected costs of plants in various coun- tries, it would not be claimed that the fig- ures apply to all projects and sites. Most cost engineers and estimators will have learned from bitter experience that produc- tivity can vary from one site to another within the same country at the same time, and from one project to another at the same site at different times. Productivity can change throughout a project, generally being lower at the start and end and higher during the period of major construction activity.

Here again, as with local variations in hourly labour costs, it is possible to out- line some of the basic reasons without being able to quantify their effects. Size of project and of plant have important effects. Dealing first with project size, productivity tends to fall as size increases. With a small project, it is possible to select the labour force and the supervisory staff. As numbers increase these freedoms of choice are decreased and the quality of both tends to fall. The larger the area involved, the more difficult does supewision become, whilst the produc- tive time is reduced because of the increased time spent in getting to and from the work site. Conversely, increase in plant size leads to increased productivity, if productivity is measured by the normal “yard-sticks”. For example, man-hours per tonne or metre for fabrication and erection of pipework, which absorbs a large part of the total field man-hours, genera1.y decrease with increase in pipe diameter. Similar reductions occur for steelwork, vessels and other equipment.

Productivity is affected also by the cur- rent economic climate. When economic activity is high, productivity will be reduced because of difficulties in recruiting and retaining an efficient labour force. Absen- teeism tends to rise and delays in delivery of materials and equipment are more likely to occur. When activity is low, the opposite occurs except towards the end of the con- struction programme when the lack of other work encourages a tendency to delay com- pletion until prospects of employment

Comparing productivities for projects on virgin sites with those for the development of existing sites, the former tend to be higher. This is due in part to the safety and other regulations applicable to operating areas and in part to the physical problems arising from difficult access to the work areas, on existing sites.

p.4 = Basic price per tonne for steel. plate ;

L1 = Hourly labour cost for Mechanical Engineering;

L1 = Hourly labour cost for Construc- tion; and

F = Relative productivity per man-hour for Construction.

Using material prices and labour costs which appeared in earlier articles, and amend- ing them as necessary for variations appli- cable to the particular locations being com- pared, a much better answer would be achiev- ed. L2 is most affected by variations, F to a lesser extent and for L1 it would be satis- factory to use national averages since it represents the labour cost element in the price of equipment. For PI to P4 an ad- justment would be advisable if one or more of the locations is remote from the supply source, to allow for high transport costs to site.

REFERENCES From the foregoing it is clear that the

use of indices based on national averages for a comparison of erected costs of plants at dilfferent locations could prove to be quite misleading if there are large regional or other variations from national averages obtaining at one or more of the locations. in such cases it would be better to use the specific prices, costs and relative produc- tivities applicable ito the locations. The method proposed in the previous ‘article (pp. 267-273) invo.Uved establishing a “sub- stitute” erected cost, C, for each plant to

e csmpared, where

c=lOp~ +& +3P, +6P, +3OOL, x 2/(1 +F)+ 230L2 x l/F’;

and where

P = Basic price per tonne for Portland cement;

= Basic price per tonne for reinforcing rod ;

3 asic per for structural steel;

1 Bulletin of Labour Statistics. International Labour Office, Geneva.

2 Engineering - News Record. McGraw-Hi& New York. 3 Statistisk Arbog (Statistical Yearbook). Danmarks Sta-

tistik, Copenhagen. 4 Year Book of Labour Statistics. Ministry of Labour,

Japan. 5 Lonnsstatistikk (Wage Statistics): Statistisk SentralbyrB,

Oslo. 6 New Earnings Survey, Part D. Department of Employ-

ment, London. 7 Wage Rates - Australia. Australian Bureau of Statistics,

Canberra. 8 Labour Statistics. Australian Bureau of Statistics, Can-

berra. 9 Hourly Earnings-Hours of Work. Eurostat, Luxemburg.

10 AMU&~ de Statistiques Rkgionales. Institut National de Statistique, Brussels.

11 Employment, Earnings and Hours. Statistics Canada, Ottowa.

12 Liihne und Gehiilter. Statistisches Bundesay+, Wiesbaden, Germany.

13 AMUZU~O Statistic0 Ha&no. Instituto Centrale di Sta- tistica, Rome.

14 Regionaal Statist&h Zakboek. Centraal Bureau voar de Statistiek, The Netherlands.

15 Liiner (Wages). National Central Bureau of Statistics, s tockholm.

16 Employment and Earnings. US Dept. of Labor, Burec~ of Labor Statistics, Washington.