Introduction
Greg Edwards, at the St. Louis Business Journal, called me about the state of the construction industry in Saint Louis. He noticed unusually high wages in the area and wanted to know why they were so high. He also was hearing construction managers complain about the difficulty in attracting new workers. You can access his article in the St. Louis Business Journal; below is the information that I sent to him.
Cost Of Living Statistical Adjustment
In the field of urban economics, we often separate wages definitions into gross wages and net wages, where net wages are adjusted for the local cost of living. Gross wages tell us something about labor productivity and net wages tells us something about local amenities.
San Francisco, for example, has high gross wages. Some businesses are still willing (and in some cases eager) to locate there because the high gross wages are offset by high local productivity. On the other hand, San Francisco has average to low net wages. Some people are still willing (and in some case eager) to locate there because the relatively low net wages are offset by local amenities. (I’ll explain more below.)
Is There A Shortage?
Economists use the word shortage in a narrow sense, where wages are too low to clear the market. If there are no legal restrictions for wage adjustments or migration, then markets will tend to clear on their own.
In my experience, managers and owners use the word shortage to mean difficult or unusually difficult to hire people profitably. But their complaints don’t tell us much. In a healthy economy it is difficult to make a profit, and in some unhealthy economies it is easy to make a profit.
Construction Growth
An economic shortage could be caused by a sudden increase in demand for construction workers. A good place to start looking is with the Bureau of Economic Analysis’s (BEA) tables on U.S. production.
The graphic below presents the growth of nominal (not adjusted for inflation) construction growth. I set the index to equal 100 in the year 2010 to see total growth since the bottom of the housing market (for most regions). I chose the three regions with the fastest construction growth since 2010, plus the U.S. average, plus Missouri.

Clearly, construction in the west is growing rapidly, while the Great Lakes region is growing at about the U.S. average. Missouri, which is included in the Plains region, is growing much slower.
Population Growth
The same holds true for population growth. The graphic below shows the population growth for the same regions. Missouri’s population is growing, but at a slower pace compared to the U.S. average. (Missouri has been growing more slowly since about the mid-1970s, not shown here.) It is interesting that the Great Lakes region is growing so slow, yet construction grow is at about the U.S. average.

If there is a shortage, it is obviously not being caused by a sudden increase in demand for construction workers in the region. It may be the case that construction workers and potential construction workers are being pulled out of the state based on higher demand in the West.
Still, we know wages for various types of workers in the trades (mostly in construction) are high in Missouri and the Saint Louis area specifically. High wages and sluggish demand normally don’t go together.
Share of Production
The BEA breaks down production into several parts. The graphic below shows the share of total construction output by three important components: compensation of employees, taxes on production and imports less subsidies, and gross operating surplus (not exactly profit in an accounting or economic sense).

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