I’d like to thank Gregg Robertson for highlighting the labor shortage challenging the landscape industry.
The Wall Street Journal also recently ran an article (gated) that while broader than just the landscape industry, foreshadowed the implications of the worsening labor shortage.
Landscape employers that run legal and compliant operations are being squeezed between a shortage of legal local labor; widely available and lower cost illegal labor—with no enforcement or consequences against employers who utilize this meaningful advantage; and a more difficult, unpredictable and constrained H-2B guest worker visa program that hasn’t been expanded since it was created 27 years ago.
The negative financial impact of employers who cheat and employ illegal labor to capture its cost and capacity advantages—and count on continued lack of enforcement to enable them to keep doing so—is what adversely impacts American workers, legal and compliant U.S. companies, their owners and U.S. taxpayers. Until that supply and demand imbalance in landscape labor markets is fixed, adverse impacts to legal American landscape workers and legal U.S. landscape companies will continue to grow, and will continue to generate ever-increasing needs for a viable H-2B program with a predictable returning-worker exemption so legal companies can field a competitive seasonal workforce and compete against the cheaters.
Field labor is more than half the cost in a landscape maintenance business—far and away the largest cost. The cost advantages generated by companies employing illegal labor can be substantial, including lower worker wages (often paid daily in cash); no overtime; no tax withholdings for unemployment, Social Security or healthcare; lower workers’ compensation payroll bases and costs; lower or no worker benefit costs for holidays or paid time off; and no healthcare or retirement benefits offered. These cheating companies further enjoy a very meaningful availability advantage. Legal and compliant companies have been recruiting all available legal local workers for months heading into the spring. To gain approval to use the H-2B program, companies have to prove to both the Department of Labor (DOL) and U.S. Citizenship and Immigration Services (USCIS) they have been trying to recruit legal local workers at minimum market wage rates specified by DOL, yet have been unsuccessful in doing so.
In the markets in which we operate, these rates start at an average of $12 per hour, and rapidly increase from there with skills, experience and driving capabilities. Our average fully burdened wage is $16 per hour. Yet even at these rates, legal companies can’t find legal workers, while the cheating companies pick up illegal day laborers as needed. Then the cheating companies use the cost, capacity and flexibility advantage to take market share by undercutting market prices on bids and quotes for landscape services, and providing more responsive labor surges when needed by customers.
This is not a minor problem. The Pew Research Center estimates that more than 20 percent of all workers in landscaping are illegal. If half of landscape companies run legal and compliant operations, then simple math says that about half of the workforce of the other half of companies are illegal.
When supply and demand doesn’t work
With labor accounting for more than half of total costs in a landscape business, it’s critically important for landscape companies to get their labor force right. If costs are too high, the company cannot be competitive and will continually lose work. But it can’t serve customers without a workforce either. So what should happen when demand for labor exceeds the supply? The wages to workers should go up, accompanied or followed by price increases by companies to customers for those services. But that can’t happen today because the playing field is not level, so supply and demand doesn’t work. The landscape companies that cheat and employ illegal laborers don’t have to increase wages or prices to customers, as they have a readily available supply of lower cost workers not available to legally operating companies, and no one has seen or experienced enforcement actions against such cheating companies.
The result is when legal companies try to raise prices to pay legal workers higher wages, our customers bid us out. The cheating firms, using this significant illegal advantage, undercut us. And we lose the contract. There are some commercial customers that care about the legality of the workers on their properties: schools (where we must pass their background check, drug test and wear a school-issued badge to enter and be on the property); certain high-end manufacturers; and a very small and select group of others. But the vast majority of customers don’t care, and some are so cavalier as to say they already assumed all the landscape workers were illegal, and that’s the landscaper’s problem not theirs. Even state and local governments (outside of schools) often don’t ask for verification that our workforce is legal. The hypocrisy is maddening.
According to the law, there are a series of fines to businesses per illegal employee that escalate for first, second and third offenses and up to a six-month jail term for a pattern of knowingly employing illegal workers. When we ask the DOL and USCIS about enforcement, they’ve told us they don’t have the resources.
Yellowstone Landscape operates in 15 major metropolitan markets across the south, and this is my fifth year leading our company. I’ve never heard about an enforcement action on any landscape company in one of our markets. There has been no deterrent to the practice of hiring illegal workers in our industry. Ethically, our company doesn’t break the law, and we have no interest in risking jail terms. So the lower cost illegal workforce isn’t available to legal companies, yet it still makes up an enormous component of the industry.
And it’s not just the legal companies that are adversely impacted. American workers who might be interested in landscaping see an industry where the work is hard and hot, more and more of the work is done by illegals getting lower (and often times daily cash) wages with no security or protections. Hence, wages to legal local workers are constrained by the widespread impact of lower cost illegals, so these Americans become less interested in working in the landscape industry, and the cycle continues and gets worse.
Why hiring is a Catch-22 in the landscape industry
Landscape companies are the largest users of the H-2B program, as it helps enable legal companies to field a legal workforce. It requires proof of recruiting and hiring efforts, higher cost minimum wages set by DOL and extensive filings and daily reporting to DOL. The hurdles, bureaucracies, requirements, delays and risks to use the H-2B program continue to escalate, and this year Congress chose not to renew the returning-worker exemption. The combination of these actions, or lack thereof, sends a message that sure seems to encourage the continued and growing use of illegal labor by landscapers. It’s a Catch-22 for a landscape company owner. Do the right thing and watch your business get stolen by cheaters, with no enforcement against cheaters from your government, then have your government make it harder for you to legally operate your business. Or go with the flow and cheat, have lower costs, have far fewer reporting hassles, have more flexible staffing, have happier customers and do so since no responsible agency seems to be doing anything about it and our congressional and agency leaders keep taking actions that encourage such cheating.
The recession is over, and businesses are growing again. The H-2B visa cap of 66,000 visas was set in 1990. Since that time, nominal GDP has more than tripled, real GDP has doubled, yet the cap remains unchanged. The returning-worker exemption, which rewards compliant legal companies that create an environment workers want to return to, was not renewed by Congress this year. As a result the two 33,000 visa caps were met faster than at any time in the program’s history. Legal companies that have brought in H-2B workers for more than a decade have been “capped out” of the program, won’t get their workers this spring or summer, and they are looking at a nightmarish season of overworked current workers, upset customers, decimated financials and the rapid loss of the contracts and customer volume that was built over years of hard work. And who will pick up the business the legal companies employing legal workers lose? The cheating companies employing increasing numbers of illegal laborers. What a great set of policies by our federal leaders.
In our industry, supply and demand isn’t working because the playing field isn’t level. There’s a low cost, flexible and readily available supply of labor to companies that cheat. Legal companies get squeezed, and there will be more and more companies turning to illegal laborers as their only remedy, because enforcement doesn’t happen. The cheaters capture a huge cost, flexibility, and pricing advantage. That is what hurts legal American workers and legal American companies.
Congress and USCIS can remedy this by a combination of:
1) Enforcing our current laws;
2) Reinstalling the returning-worker exemption and making the H-2B program viable, efficient, far less burdensome and far more predictable; and
3) Addressing the legal work status of the undocumented/illegal population that’s here in our country and seeks a chance to work and build a better life for themselves and their families.
On the latter, some argue for deportation for illegals and say that anything short of that is amnesty. Others argue that the undocumented workers already here should have a way to come out of the shadows and have the ability to legally get a job, giving legal employers the opportunity to compete for these workers on a level playing field. Either solution (or a combination thereof) would allow supply and demand to work as it should. The outcome will be that wage rates will rise for all workers and prices to customers will rise proportionally. That’s one of the underpinnings of capitalism. Supply and demand works, but markets have to be on a level playing field. Today, the labor supply in landscaping is not a level playing field, and the policies and actions of our government are perverse. You either cheat and win, or comply with the law and lose. That’s what we need to solve.
The H-2B program is not the problem. It’s a tool that helps legal companies in seasonal industries find legal workers they otherwise haven’t been able to find; be competitive with cheating firms by providing a seasonal ramp up with workers who want to work through the heat of the summer season; and lessen or eliminate the need to lay off legal U.S. workers over the winter off season, as the seasonal labor ramp down is met by sending the guest workers home. It hasn’t grown in size in 27 years (while GDP has tripled), and it not only has no adverse impact on American workers, it helps those American workers who want long-term employment in the landscape industry. The returning-worker exemption rewards companies that treat all workers fairly and ethically, so they want to return year after year, giving the business a predictable operating plan for serving its customers.
I encourage you to contact your Congressional leaders and ask them to actually lead. Immediately and for 2018, reinstate the returning worker exemption; lower the regulatory, bureaucratic and reporting hurdles of the H-2B program; and expand the H-2B program as the economy continues to grow. Then, ask them to go to work on solving the far more difficult problem of how to best address the undocumented population.
The upstanding companies in the landscape industry are here to help in any way we can.
Tim Portland, CEO