Lawn & Landscape White Paper: Managing Immigrant Labor - Labor Crisis Survey

In recent years, few issues have challenged lawn care and landscape contractors’ businesses more than the shortage of quality labor. A survey conducted by Lawn & Landscape highlighted the labor crisis facing the lawn and landscape industry. Downward pressure on prices, the rising level of education and career expectations within the youngest sectors of the American workforce, and the restrictions and regulations placed on hiring legal aliens (most commonly Hispanics from Central and Latin America) by government agencies have combined to severely limit the pool of workers available to lawn and landscape contractors.

The business lost by lawn and landscape contractors from inadequate staffing is substantial in many cases. On average, firms would employ 9 percent more employees than are currently on the books if they could find people willing to work. For 1998, these 300 respondents predicted they would have boosted revenues almost 11 percent - nearly $150 million collectively - had they had an unlimited supply of qualified workers to hire.

Contractors in the South appear hardest hit by the labor shortage - on average firms in this area report being understaffed by more than 12 percent. These respondents also report having "lost" the most revenues in 1998 due to inadequate staffing, predicting they would have been able to increase sales by almost 15 percent had they had access to a sufficient labor pool. Overall, Midwestern firms report being the least affected by the shortage of qualified workers, reporting a labor shortage of just 7 percent and average lost 1998 revenues of 8.5 percent.

Despite looking for opportunities to broaden their migrant worker base, only 11.2 percent of firms currently participate in the U.S. government’s H2B program, which offers temporary work visas for legal immigrants (see article on page 7). While a number of respondents were not aware of the program and its details, others cited the difficulties, expense, and time involved in participation as deterrents.

THE CURRENT LABOR POOL. Hispanics in general make up more than one-third of the employees of our survey respondents. Lawn and landscape contractors report particularly high concentrations of Hispanic employees in the West and South, where Hispanic populations are largest. Although Mexican Americans and aliens make up the bulk of Hispanic employees in the lawn and landscape industry (more than one-third of our respondents report employing workers of Mexican descent), contractors also employ many individuals of Salvadorian, Puerto Rican and Guatemalan descent, among others. In addition to Hispanics, lawn and landscape professionals report employing immigrants from Japan, Portugal, Cambodia and the Middle East. Contractors also employ many individuals of European and African American descent.

While many firms would not be able to maintain their current level of business activity without employing individuals from Mexico and other Latin nations, the increasingly service-oriented nature of the lawn and landscape industry creates challenges for these often non-English speaking individuals to successfully service their employers’ accounts. In addition, legal aliens often have difficulty obtaining a valid driver’s license.

Employers, for their part, complain that the employment of aliens is subject to needlessly frustrating and time-consuming legal and regulatory intricacies. Other challenges include high turnover among immigrant employees, which leaves contractors with little choice but to pay overtime to cover their service obligations, thus reducing profits and limiting the wages that contractors can pay field personnel. Some lawn and landscape professionals also complain about having to compete against firms that knowingly use illegal aliens and can undercut those with above-the-board employment practices.

The government’s H2B program is cited as a partial solution by some, although many familiar with the program complain that it is too expensive and that the process for participation is too slow and difficult. Other solutions include expanded use of high school and college students for seasonal work and the development of in-house programs to teach English, driving and job skills. Some employers even offer aliens residences to encourage their return the next season.

THE IMPACT. While contractors remain frustrated with the obstacle the labor shortage creates for their own individual growth, because of the size of the lawn and landscape industry and the strength of burgeoning demand for such services, the shortage also has a significant impact on employment and economic growth locally and nationwide. Just based on the strength of the market for lawn and landscaping services and even given the current constrained labor supply, lawn and landscape contractors expect to increase employment at an average annual rate of 9.5 percent through 2004, with employment levels accelerating over the period from 2002-2004. However, survey respondents report they would be able to increase their employment today by 9.1 percent on average if they had an unlimited supply of qualified employees. The total effect would be the employment of an additional 2,300 persons just among the approximately 300 firms surveyed here. On a regional basis, respondents in the

Given the number of firms involved in the lawn and landscaping industry - more than 70,000 - the aggregate effect of the labor shortage in the lawn and landscape industry on the greater economy is potentially enormous. Financially, and by potential employment, the effect of a limited labor supply is the most striking in the West North Central subregion, an area with a very small but expanding demand base. The more temperate regions, where year-round demand for landscaping and lawn maintenance provides great opportunity for growth, are also severely affected by the labor shortage. In the healthy markets of the West South Central states, for instance, respondents report they would have been able to increase 1998 revenues by more than 15 percent if they had had adequate staffing.

In aggregate, the availability of a qualified, unlimited labor pool would have raised respondents’ 1998 revenues by an average of 10.8 percent, resulting in an additional $145 million in sales among our 300 survey respondents alone. Only 14 percent of respondents stated that having a much larger supply of workers would not have increased their revenues.

REGIONAL TRENDS. While lawn and landscape contractors across all four major regions expressed frustration regarding the inadequate labor supply, the severity and impact of the crisis is felt differently in each area. Varying unemployment levels, different rates of market growth, the average size of regional participants, the presence of state employment programs and the availability of migrant and other low-wage labor pools are just a few of the factors accounting for such differences.

NORTHEAST

Employment - Survey respondents in the Northeast region have fewer employees per establishment than the average participant to this survey. Firms in the Middle Atlantic (New Jersey, New York, Pennsylvania) reported they could employ 11 percent more and New Englanders (Maine, New Hampshire, Connecticut, Massachusetts, Rhode Island, Vermont) were prepared to employ an additional 3.9 percent. Respondents in the New England states reported healthy rates of expected employment growth over the next five years, indicating their confidence in the overall growth of this regional market. Lawn and landscape professionals in the Middle Atlantic market, on the other hand, expect below average employment growth over the same time period (relative to other survey participants).

H2B Participation - Despite a need for more employees, the rate of H2B participation in the Middle Atlantic subregion - which is just 6.5 percent - is among the lowest in the country. Conversely, participation among New England respondents is fairly high relative to other subregions at 14.3 percent.

Revenues - Both New England and Middle Atlantic respondents reported average revenues of $3.2 million, considerably lower than the $4.5 million average revenue per establishment of all survey respondents. The effects on 1998 revenues had there been an unlimited labor supply differ significantly between subregions based on the severity of the labor pinch in each. New England firms predict on average that their 1998 revenues would have been 5.3 percent higher if fully staffed, while Middle Atlantic contractors report they would have been able to boost sales by 13 percent had they had access to an adequate labor supply.

MIDWEST

Employment - With an average of more than 130 employees per company, Midwestern survey respondents are on average considerably larger than companies in the other three regions. Given an unlimited labor supply, West North Central firms (Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota, Missouri) would each employ four more people on average - an increase of more than 22 percent. East North Central (Illinois, Michigan, Ohio, Wisconsin, Indiana) respondents, who are more fully staffed, would employ an additional 10 individuals to increase employment by 6.6 percent.

As it is, firms in both Midwestern subregions expect to increase employment by more than a 9 percent average annual rate through 2004, with accelerating employment rates in the 2002-2004 period.

H2B Participation - An overwhelming number of lawn and landscape contractors in the Midwest don’t participate in the H2B program. Less than 8 percent of East North Central respondents participate, and less than 6 percent of West North Central firms use the H2B program.

Revenues - East North Central firms are particularly large, with average revenues of $8.1 million. Respondents in this healthy regional market predict they would have had a fairly modest increase in 1998 revenues of 8 percent given an unlimited labor pool. In contrast, the West North Central subregion is represented by firms that, on average, have revenues of $942,000, which closely mirrors estimates for industry averages. These companies feel particularly restrained by the poor supply of laborers, reporting the potential to have increased 1998 revenues by almost 30 percent if fully staffed, which reinforces the effect this labor shortage is having on the industry as a whole.

SOUTH

Employment - Survey respondents in the Southern region are on average the smallest of all respondents in number of employees. Among the three Southern subregions, firms in the South Atlantic (Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia) are the largest, averaging more than 57 employees per establishment, while the smaller firms of the East South Central (Alabama, Kentucky, Mississippi, Tennessee) and West South Central (Arkansas, Louisiana, Texas, Oklahoma) subregions employ on average 43 and 46 employees, respectively. Participants in all three areas would employ significantly more individuals if they were available, increasing current average employment by 11.4 percent in South Atlantic states, 13.5 percent in East South Central states and 15.1 percent in West South Central states. Even given the current labor situation, contractors in the South Atlantic and East South Central subregions expect to increase employment by more than 11 percent per year on average through 2004, with increases topping 14 percent in the 2002-2004 period. Firms in the West South Central subregion have a more reserved outlook, predicting annual average employment increases of less than 9 percent over the next five years.

H2B Participation - Participation in the H2B program varies substantially among the Southern subregions. Lawn and landscape contractors in the East South Central have the lowest rate at 8.3 percent, while 13.2 percent of respondents in the South Atlantic region take part. Firms in the West South Central subregion report the greatest participation rate among all of the U.S. subregions, with almost one-third of respondents participating in the program.

Revenues - Average revenues also vary significantly between the Southern subregions, with firms in the South Atlantic reporting the highest revenues and those in the East South Central the lowest. All participants from the Southern region are optimistic about their ability to increase revenues given an adequate labor pool, with firms in the South Atlantic reporting increases over 1998 revenues of 13.6 percent, and respondents in the East South Central and West South Central subregions reporting potential revenues increases of about 18 percent if fully staffed.

WEST

Employment - Survey respondents in the Western region have the second highest average number of employees per establishment (behind the Midwest). This is due to the particularly large size of participants from the Mountain states (Utah, New Mexico, Idaho, Nevada, Wyoming, Montana, Arizona, Colorado), which average more than 127 employees per establishment. The firms of the Pacific subregion (Alaska, Hawaii, California, Oregon, Washington) average 87 employees. Lawn and landscape contractors in both subregions would employ more individuals given an unlimited labor supply, with respondents in the Mountain states predicting they could employ an additional 13.4 percent, and those in the Pacific states reporting employment potential for 6.7 percent more. Participants in both subregions report among the lowest rates of average annual expected employment growth (7.8 percent each) over the next five years compared with the average of all respondents.

H2B Participation - None of the contractors surveyed in the Pacific subregion participate in the H2B program, despite chronic understaffing and its negative effect on revenues. Participation among firms in the Mountain region, on the other hand, is one of the highest in the country at 15.8 percent.

Revenues - Respondents from the Mountain subregion have the second highest average revenues at $6.2 million, behind only the East North Central subregion. Firms in the Pacific states, by contrast, have average revenues of $4.4 million. The Western subregions vary dramatically in their predicted revenue increases over 1998 levels had they had an unlimited labor supply, reflecting the magnitude of the labor shortage in each. Firms in the Mountain states report the potential to increase revenues by 16 percent on average if fully staffed, while Pacific contractors report being able to boost sales by 6.8 percent with an adequate labor supply.