HUMBOLDT STATE UNIVERSITY
The Labor Market for Cabinetmakers in Humboldt County
by
John Manning
Economics 310
Professor Hackett
November 16, 2000
Wallace & Hinz is a twenty-three year old Arcata cabinetmaking firm specializing in the manufacture of custom bars. Its products sell for tens of thousands of dollars, and are marketed globally. The company employs nearly forty people, most of whom are cabinetmakers earning an average hourly wage of between $9.00 and $10.00.
A common complaint heard around the lunch table questions the economics of this situation. The argument voiced claims that wages should not be tied to the local economy because the product is rarely sold locally. Although this line of reasoning seems to be grounded in common sense, it fails to recognize that product markets and labor markets are distinct. The two types of market influence one another, but act independently in several important ways. An examination of the labor market for cabinetmakers in Humboldt County helps clarify why wage levels are as they are.
According to the U.S. Department of Labor’s Bureau of Labor Statistics, cabinetmakers
cut ,shape, and assemble wooden articles, such as store fixtures,
office equipment, cabinets, and high grade furniture. They set
up and operate a variety of machines, such as power saws, jointers,
mortisers, tenoners, molders, and shapers to cut and shape parts from wood.1
The products they make are an ubiquitous part of everyday life. A typical home has several thousand dollars worth of permanent cabinets and fixtures. Additionally, a home contains furnishings worth anywhere from several hundred to several thousand dollars, depending on the inhabitants’ tastes and resources.
Mechanization is the watershed event in the history of this occupation. Prior to the technological advances of the Industrial Revolution, cabinetmaking was a skilled trade with considerable human and physical capital requirements. Young men acquired the necessary skills through a long apprenticeship, for which they often had to pay. Furthermore, craftsmen were obligated to provide most of their tools. Consequently, the cost of labor was relatively high.2
By the mid nineteenth century, the effects of mechanization on cabinetmaking were being profoundly felt. As technology led to increased productivity, the demand for labor decreased. Mechanization also significantly reduced both the human and physical capital required to enter the trade. With lower entry costs the pool of available labor expanded, and semi-skilled workers became more expendable.3 All of this had a negative impact on the wages of cabinetmakers.4
Since then, there have been many improvements in both production and material technology. The exact effects of these changes are difficult to ascertain. Significantly increased productivity has exerted downward pressures on the demand for labor. However, this has been balanced somewhat by growth in the demand for the product due to increases in population and relative affluence.
For a paper of
this scope, the analysis of supply in a local labor market can be reduced to
examining the theory of household choice.
This concept helps explain why and how people respond to an opportunity
to work at a given wage rate.
Individuals, whether single or as a member of a family, will attempt to
maximize the well-being of their households by choosing among alternative
combinations of work and non-market activity.
The choices are made based on the relative preferences individuals have
for money income, social status, additional education or training, and leisure,
among many other things. These choices determine which labor market is entered
and how much time individuals offer therein.5
Entry costs, which are the physical and human capital required to enter a given market, are among the most important factors in determining which labor market to enter. As stated in the previous section, entry costs in the market for cabinetmakers are considerably less than before mechanization. According to an Occupational Outlook report sponsored by the California Employment Development Department, education is helpful, but not necessary, for entry into this trade. A high school diploma is not required by nearly two-thirds of the employers in Humboldt County.6 In most cases entry costs are limited to a tenth grade education, and a couple of hundred dollars worth of tools.
Another important determinant in labor supply is the internal rate of return on gaining the skills necessary to an occupation.7 Since earning potential for cabinetmakers in Humboldt County is slightly higher than for other careers with similar educational requirements and entry costs, the internal rate of return is also slightly higher.8 As a result, cabinetmaking is a relatively attractive occupation when compared to the likely alternatives.9
The demand for labor is derived from the demand for the goods and services that labor produces. The primary determinants in the demand for cabinets are, in turn, the number of homes newly constructed or remodeled, and the level of consumers’ disposable income.
Income elasticity is the dominant economic characteristic of the demand for cabinetry and furniture. One study gives furniture a short-run elasticity coefficient of 2.60.10 this implies that furniture (and, by extension, cabinetry) is a luxury item whose demand is inversely related, and highly responsive to changes in the income of consumers. The same study gives the product a long-run elasticity coefficient of 0.53,11 which suggests that consumers regard furnishings as a necessary component of their lifestyles.
Cabinetry is a vertically differentiated product. Despite some obvious shared characteristics, a huge difference exists in both quality and price among the mass-produced particleboard cabinets distributed nationally through home centers, the made-to-order plywood cabinets constructed by a smaller scale local shop, and the one-of-a-kind pieces made from premium wood by a master craftsperson.
Additionally, cabinetry is horizontally differentiated at certain levels of function. This is particularly true of kitchen cabinets. Because demand is regional in nature, and is largely limited to new housing and remodels, production-level cabinetmaking is most often a small to moderate scale operation, with each geographical region containing at least a few manufacturers.12 Larger construction companies often maintain a shop to supply cabinets to their new housing developments at a lower cost.
At the level of the firm, cabinet manufacturers act as any other profit-maximizing business. As such, demand for labor depends primarily on the principle of marginal productivity.13 Determining the figures necessary for this kind of analysis can be a complex process, especially for a small firm that manufactures a product like custom cabinetry. Consequently, a “going rate” wage level has evolved over time as firms successfully adjust labor costs, or go out of business (see Table 1).
The marginal rate
of technical substitution also affects the demand for labor by determining the
level of substitution among production inputs.14 In the cabinetmaking industry, the
most common substitutions occur between labor and machinery, and between
relatively skilled and less-skilled labor.
The levels of these input combinations are highly dependent on the size
and product line of the firm.15
Appendix
|
|
Total Revenue |
Revenue due to
Cabinet-making |
Hours of Cabinet-making
Labor |
Cost of Cabinet-making Labor |
Unit Cost of
Cabinet-making Labor1 |
Average Revenue Product,
Cabinetmaking Labor2 |
|
$66,900.00 |
$8,265.52 |
501.25 |
$5,894.37 |
$11.76 |
$16.49 |
|
|
Large
Residential |
$81,183.00 |
$8,839.50 |
518.25 |
$5,992.55 |
$11.56 |
$17.06 |
|
$28,341.00 |
n/a |
262 |
$3,210.85 |
$12.26 |
--- |
|
|
Small
Residential |
$6837.00 |
$1,359.09 |
60.5 |
$880.20 |
$14.55 |
$22.46 |
These figures come from a Humboldt County firm manufacturing high-end custom cabinetry. They are for individual jobs, each being representative of its job type. The figures relating to cabinetmaking exclude administration, drafting, milling, finishing, crating, installation, etc. At best, the figures for unit cost of labor and average revenue are rough estimations.
1 Cost of cabinetmaking labor
divided by hours of cabinetmaking labor
2 Revenue due to
cabinetmaking divided by hours of cabinetmaking labor
|
Region |
Population 1999 Estimate |
Labor Force Aug. 2000 |
Unemployment Rate Aug. 2000 |
|
Humboldt Co. |
121,358 |
61,800 |
5.60% |
|
San Luis Obispo Co. |
236,953 |
113,700 |
3.60% |
|
Alameda Co. |
1,415,582 |
1,248,200 |
3.20% |
|
California |
33,145,121 |
17,225,700 |
5.00% |
|
United States |
272,690,813 |
140,742,000 |
4.10% |
Population data
from U.S. Census Bureau:
http://www.census.gov
Employment data for regions in California from Employment Development Department: http://www.calmis.cahwnet.gov
Employment
data for the United States from Bureau of Labor Statistics:
http://stats.bls.gov/news.release/empsit.nr0.htm
|
Region |
Mean Hourly Wage |
Median Hourly Wage |
Median Annual Wage |
|
|
|
|
|
|
Humboldt Co. 1997 Estimate1 |
$9.25 |
$10.42 |
$19,240 |
|
San Luis Obispo Co. 1998 Estimate |
$10.28 |
$10.11 |
$21,390 |
|
Alameda Co. 1998 Estimate |
$14.38 |
$11.41 |
$29,910 |
|
California 1998 Estimate |
$12.58 |
$11.24 |
$26,160 |
|
United States 1998 Estimate |
$11.49 |
$10.76 |
$23,000 |
Wage data for regions in California from Employment Development Department: http://www.calmis.cahwnet.gov
Wage
data for the United States from Bureau of Labor Statistics:
http://stats.bls.gov/news.release/ ocwage.t01.htm
1 Figures based on an aggregation of data from Humboldt,
Mendocino, and Lake Counties
Table 4: Comparison of Real Wages (based on median price of a typical house)
Median rental prices for Alameda County are derived from classified advertisements in the San Francisco Chronicle, November 11, 2000, C17
1 Median monthly rent divided by mean monthly wage
2 Martin Eli Weil, “A
Cabinetmaker’s Price Book,” in Winterthur Portfolio 13: American Furniture and Its Makers, ed.
Ian M. G. Quimby (Chicago: The
University of Chicago Press, 1979), 178-79.
According to a 1772 price book, the cost of a journeyman’s labor
amounted to 35% of the price of casework and tables, 32% of the price of
chairs, and 25% of the price of sofas and bedsteads.
Interestingly, the demand for full-time cabinetmakers did not evolve in the United States until the mid eighteenth century. By the 1740’s, the level of wealth necessary to support a full-time, professional cabinetmaking industry was beginning to accumulate due to privateering during the King George’s War, and the success of the plantation system. Before this time, most cabinetmakers practiced an additional trade such as housewright, joiner, engraver, craver, ship’s joiner, or painter in order to make ends meet. See Michael Moses, Master Craftsmen of Newport: The Townsends and Goddards, (Tenafly, NJ: MMI American Press, 1984), 3.
3 Harold Wool, The Labor Supply for Lower-Level Occupations, (New York: Praeger Publishers, 1976), 40-41. This was also the period of the first great wave of non-British European immigration. German and, to a much lesser extent, Irish immigrants had a significant impact on the labor markets of semi-skilled occupations.
4 Donald C. Peirce, “Mitchell and Rammelsberg: Cincinnati Furniture Manufacturers 1847–1881,” in Winterthur Portfolio 13: American Furniture and Its Makers, ed. Ian M. G. Quimby (Chicago: The University of Chicago Press, 1979), 211. In 1854, a Cincinnati furniture factory paid its craftsmen about $0.20 per hour. This figure is based on a weekly wage of $12.00 (assuming a sixty hour workweek). Over twenty-five years later, a Shaker cabinetmaker set his labor cost at the same $0.20 per hour. See Jerry V. Grant and Douglas R. Allen, Shaker Furniture Makers, (Hanover, N.H.: University Press of New England, 1989), 115.
5 Ingrid H. Rima, Labor Markets, Wages, and Employment, (New York: W.W. Norton & Company, 1981), 13-20.
6 “Occupational Outlook, Humboldt County, 1997-1999,” 13-14.
7 See Rima, 70-72, and Lloyd G. Reynolds, Labor Economics and Labor Relations, (Englewood Cliffs, NJ: Prentice-Hall, Inc., 1974), 53-55. The internal rate of return is the percentage of additional earnings made by attaining additional skills. Essentially, education or training is viewed as an investment with an expected rate of return. A person undergoing additional training incurs costs and/or foregoes earnings in the present in order to increase earning potential in the future. As long as the increased rate of earning exceeds the market rate of interest, the training is profitable. This concept can be expressed mathematically as:
n
C = PV = ∑ Yk / (1 + r)k
k=1
where C = the cost of the education, PV = the present value of the education, n = the number of years in a working life, Y = income for each individual year, r = the rate of return for each individual year.
8 “Occupational Outlook, Humboldt County, 1997-1999.” This conclusion is based on comparing the upper end of the wage range for experienced workers with at least three years of service with a firm for occupations in which at least fifty percent of the employers require less than a high school diploma. This report compares twenty occupations for 1999. Of these, nine other trades have educational requirements similar to cabinetmaking. Only two of these pay a potentially higher hourly wage (cabinetmakers--$14, printing press operators--$15, and automotive mechanics--$20).
9 Anecdotal evidence suggests that the popularity of woodworking may have a peripheral effect on the supply of cabinetmakers. Individuals who might otherwise be over-qualified are frequently found working in this occupation, particularly in small scale shops producing higher quality products.
10 Hendrik S. Houthakker and Lester D. Taylor, Consumer Demand in the United States: Analyses and Projections, (Cambridge: Harvard University Press, 1970), n.p.; cited in Irving B. Tucker, Microeconomics for Today, 2nd ed., (Cincinnati: South-Western College Publishing, 2000), 129.
12 In the United States, kitchen cabinets are almost always made-to-order and permanently installed. This immobility reinforces the regional nature of the product market. In many parts of Europe, cabinetry is designed to be portable. As a result, the market is much less regional.
13 Rima, 111-15.
This theory applies to firms, like cabinet manufacturers, whose level of
output has no effect on price in the product market (price-takers). According to this theory, employers will
continue to hire additional workers at a given wage as long as the unit labor
cost (marginal cost) equals the additional revenue generated by an additional
worker (marginal revenue product), where MRP is less than average revenue
product (total revenue divided by total
hours of labor). The unit labor cost
includes the wage, government mandated items such as unemployment and worker’s
compensation insurance, and benefits.
The figures in Table 1, though not derived using this theory, seem to
corroborate it.
15 For example, when faced with the onerous task of sanding, a self-employed cabinetmaker might do it herself, or attain the skills required to produce a hand planed surface ( hand planing takes as much time as sanding, but is a much more pleasant and satisfying process) rather than commit to the added cost and administrative chores that come with having employees. A small shop might find it more sensible to hire an additional employee at or near minimum wage as needs dictate just to sand. A larger shop will likely purchase a costly wide-belt sanding machine (interestingly, these machines are generically known as Timesavers).
16 “Occupational Outlook, Humboldt County, 1997-1999,” 13.
17 “Occupational Outlook, Humboldt County, 1997-1999,” 14.
18 Alameda County was chosen for comparison because it is, perhaps, the most representative county in the closest major metropolitan area. It has urban, suburban and rural portions, and it remains relatively affordable for middle class workers. San Luis Obispo County was chosen because of its intermediate size, its coastal location, and the fact that it is home to a California State University system school.
Since most cabinetmakers in Humboldt County do not own their homes, the rental market for 2-3 bedroom houses and 2 bedroom apartments is examined in Table 5. It shows that when using rent as the measure of comparison, the difference in real wages found in Table 4 is even more pronounced.
Bibliography
The California Cooperative
Occupational Information System.
“Occupational Outlook, Humboldt County, 1997-1999.” Eureka, CA:
The Humboldt County Employment Training Department, 1999.
Grant, Jerry V. and Douglas
R. Allen. Shaker Furniture Makers,
Hanover, N.H.: University Press of New
England, 1989.
Houthakker, Hendrik S. and
Lester D. Taylor. Consumer Demand in
the United States: Analyses and
Projections. Cambridge: Harvard University Press, 1970. Cited in Irving B. Tucker, Microeconomics
for Today, 2nd ed., 129.
Cincinnati: South-Western
College Publishing, 2000.
Moses, Michael. Master Craftsmen of Newport: The Townsends and Goddards. Tenafly,
NJ: MMI American Press, 1984.
Peirce, Donald C. “Mitchell and Rammelsberg: Cincinnati Furniture Manufacturers
1847–1881,” in Winterthur Portfolio 13:
American Furniture and Its Makers.
Ed. Ian M. G. Quimby.
Chicago: The University of
Chicago Press, 1979: 209–29.
Reynolds, Lloyd G. Labor Economics and Labor Relations. Englewood Cliffs, NJ: Prentice-Hall, Inc., 1974.
Rima, Ingrid H. Labor Markets, Wages, and Employment. New York:
W.W. Norton & Company, 1981.
Weil, Martin Eli. “A Cabinetmaker’s Price Book” in Winterthur
Portfolio 13: American Furniture and
Its Makers. Ed. Ian M. G.
Quimby. Chicago: The University of Chicago Press, 1979: 175–192.
Wool, Harold. The Labor Supply for Lower-Level
Occupations. New York: Praeger Publishers, 1976.