Why is Labor so Expensive?

01/15/20 by Brandon

Have you ever asked yourself why labor costs are so high? Really – why does labor cost $100 an hour on the show floor? In today’s market you may guess that these carpenters, teamsters, and other “blue collar” workers have a total income around 40 to $50,000 per year depending on the work available and any overtime hours they get.

It’s a demanding job that requires workers to be extremely flexible in their work schedule. It’s also important to realize that union work is a part time job for most members and they may only work a few days a week, if they are lucky, during slower months. The thought of a 9 to 5 job just does not exist in the trade show world. Trade shows have definite slow and busy periods with most shows occurring during the Spring and the Fall seasons.

Since I know firsthand what union workers make in the Washington DC marketplace, I can tell you that it is roughly about 25 to 35% of the amount charged to you as the customer. So does this mean that the contractor is making 65 to 75% profit on each hour of labor? Well – gross profit – yes but we both know that there are lots of expenses that greatly reduces gross profit to a much smaller net profit. I am surprised to see how few people really comprehend or even stop to think about all the costs that a company absorbs as a part of labor costs. So here is a crash course in payroll expenses and related costs.

A quick list is a good way to start and then we can go back and dig a little deeper into each topic. Now this list includes union labor and full time employee labor so I can give you a complete picture of all the components of labor costs:

  • FUTA – The Federal unemployment tax
  • SUTA -State unemployment
  • Workman’s Compensation Insurance
  • Social Security
  • Medicare
  • Health Insurance
  • Retirement Accounts
  • Vacations
  • Union Training Funds (this is exclusive to the Union, of course)
  • Sick leave
  • Bereavement leave
  • Maternity leave
  • Holidays
  • Continuing Education credits
  • Bonuses, Incentives, and Raises

FUTA – It is a Federal Unemployment tax the company pays to fund the federal government’s role in State unemployment. The three main components of FUTA are extended benefits, a borrowing fund for states to use, and the government’s administrative costs.

SUTA – It is the State Unemployment tax which funds the state agency where people go to file for unemployment claims.

Workman’s Compensation – required insurance to help cover workplace Injuries.

Social Security – which everyone knows is the Federal Retirement Fund. Now this is where you say “hey wait a minute – I pay that tax with payroll deductions.”  What you may not know is that companies are required to match the amount that you pay.

Medicare – A federal system of health insurance for people over 65 years of age and for certain younger people with disabilities. Again, companies are required to match the amount that you pay.

Health Insurance, training, retirement and vacationcosts are all paid by companies to the union directly. It is a fee assessed by the union, per hour, on top of the union employees hourly pay rate. This fee can be as much as 50% of the hourly pay rate.

Full time company employee costs can also include sick leave, bereavement leave, maternity leave, holidays, continuing education credits, bonuses, incentives, and raises. These are all additional costs that add to the labor rates you pay on the show floor for services.

Hopefully that gives you a little more insight as to what goes into trade show labor rates. In reality, it is in line with many other service industries like auto repairs, or heating and air conditioning companies that rely on their labor rates for revenues. They need to charge these labor rates to cover all their costs and eke out a small profit.

And to be clear on the costs we just went over (the list above), those are only the costs directly related to labor. Then you add all the other expenses like building leases, equipment, business insurances, and utilities, and you can start to see how these labor rates grow.