The Economics of Archaeology: Part 1

Posted on February 13, 2013

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About two weeks ago, the IfA agreed to no longer make its registered organizations abide by its recommend pay minimum for salaries. However, they will no longer advertise positions below that threshold on their Jobs Information Service. A bit of a mixed bag result. I am not going to really talk about the actually decision but about people’s, and by people I mean archaeologists, response to the situation. Most of it pretty much involved putting more troops on the western front and moving forward.

If you have ever watched the movie, or read the book, All Quite on the Western Front, there is a seen were the protagonist is on leave to his home town and meets his father and some of his father’s friends.  If you have not seen it here is a link go to 1.50.40. “Shove ahead out there, smash through the johnny!” Basically, the old men talk about how they can win the war, totally disconnected from reality. That, aside from a few sane voices, is pretty much how everyone was going on a few weeks ago: “we need to unionize” “high salaries are causing us to be under cut, we need to get rid of the minimum to stay competitive” etc. etc. etc. All wonderful armchair generals but not a single foot solider in the lot of them.

Now this is not just a UK phenomenon, I have heard the same conversations in the US and from some Canadian archaeologists. I am guessing the problem of low wages and under cutting is a problem in pretty much every country with competitive bidding and a poor economy (probably excludes Australia at the moment). The real problem I see with this armchair generaling is not that it happens but that most of the arguments are disconnected from reality (might be the definition of armchair generals) and as such the arguments go no where.

This is partly to blame on universities and partly to blame on commercial archaeologists themselves. That is because no archaeology program, at least none I have come across or heard of, actually gives anyone practical business skills. Heck, even one day courses are unheard of. However, commercial archaeologists do not take the opportunity to inform their staff about the business realities till the last minute e.g. here, make a bid and let’s hope it goes well. Thus, we have lots of archaeologists talking a big game but not delivering.

Undercutting and Wages

The first myth to dispel is that under cutting is hurting wages or that wages are allowing people to be undercut.

Side note: people confuse being under cut with being underbid. Under cutting is not simply offering a lower price, it is offering a significantly lower price e.g. you bid $10,000 they bid $1,000. Most people who win bids underbid their competitors, either offering the same services for a little less or more services for the same price. Undercutting however is such a low price that it is hard to believe that can offer goods or services at such a price and barring some breakthrough they usually can’t.

Back to the question at hand- under cutting is hurting wages or high wages are allowing people to be undercut. There is no standard way of putting together a bid but for most work it is based off of the multiplier. Multiplier??? you ask? Well that is hourly wages + overhead + the company fee. So a multiplier of 2.2 would look like salary 100% overhead 110% and company fee 10% of the wages for the person in question. What most archaeologists fail to understand is that their daily rate, i.e. the rate charge to whoever is paying for the work, is much higher than their wage. So if you are paid $96 a day ($12 per hour) then with a 2.2 multiplier someone is being charged $212 for your work.

Now, I will use my first CRM job as an example of why lowering wages will not stop people from being undercut. I was paid 12? 12.50? an hour. I honestly can’t remember. It was back when minimum wage in the states was $5.15 and hour. I had previously been working in the not-for-profit sector for $6 an hour so I was very happy to get double of what I had been making. Lets say it was $12.50. Well the project was a per Diem job (7 hour drive to the nearest town f0r the company, 2 hour drive to the actually area). Per Diem was $85, it was a government contract, which meant right off the bat I was costing them 185% of my wages. Considering it was a 4 hour drive round trip each day and vehicles depreciate in value anywhere between 8-80 cents a mile, just Per Diem and diving me to the location was probably costing 100-110%. That meant that this project was most likely on a 3 or 4 multiplier e.g. 100% wages, 200-300% overhead. Now in that scenario I am costing $300 plus  a day.

Now how does one under cut those sort of prices to get down to $250 (16% less) $200 (33% less) or 150 (50% less) and really undercut a bid. What if we cut salary to lets say $10 an hour? That eliminates $20 (6%) hmmm not really getting there. There is lies the problem, wages make up only a percentage of the total costs. Take for example the UK at the moment a basic site assistant is make about 300 a week. Minimum wage (over 21)  is about 235 a week (37.5 hrs). Assuming a 2.2 multiplier even if you cut wages to the legally required minimum you are only going to get about 20% reduction in costs. Remember, under cutting is significant, close to 50% or more.

So even in the best case (for who?) lowering wages alone will not allow anyone to match under-cutters. This leaves two options, one is to also reduce overhead by that much. The problem with this is overhead is critical to your business. It pays for rent, vehicles, equipment, computers, your time, etc. It is not easy to cut and actually hurts you in the long run. For example, lets say instead of renting your vehicles you buy your own. Where does the money come from? Well lets say you donate yours to the company, problem solved. There is no need to account for paying for a vehicle, except that does not eliminate all of your costs, oil changes, gas(petrol)? Not that easy to cut costs. Now 6 months down the line the vehicle dies, because archaeology is rough. That money that would have gone to paying for repairs or to buy a new one was never received because you won your contracts by undercutting. Now you have no vehicle and can no longer get bids, congrats you end up bankrupt. Overhead is not that easy to eliminate.

However, there is a magic bullet available to sole-traders but not those who employ archaeologists, the home/work car/work car, etc. You can reduce (notice I say reduce not eliminate) some of your overhead costs by combining some of your work and home costs. Business location rent = mortgage. Home computer = work computer. The list goes on but basically instead of compartmentalizing your costs you share them. Now for employers it is nearly impossible to compete with this set up, mainly because archaeology has a problem with scale. Archaeology companies are to0 small to enjoy the benefits of scale. Having a ceramics specialists on staff does not help lower your costs, there are simply not enough occasions to use their skills often enough to offset the costs of going to a freelancer (freelancing out some of your employees skills help but still not scale). Even the largest employers of archaeologists (200+ UK 100+ US) are still too small to enjoy scale. Moreover, there is rarely enough work to keep a single specialists busy freelancing for all companies, let alone just one organization that only gets a percent of all the work.

Now before anyone thinks this is turning into a rant against sole traders it is important to note that they can only take on a certain type of work, you know the type that can be done by a single person. That pretty much eliminates excavation (not that this happens all the time) or any project that might need several people. Yes, it is possible to hire or two people on for a project but it reaches the point were you all can not fit in the shed behind the house and have to get a real office. Moreover, during the good years sole-traders miss out on the bonanza that are large contracts. More importantly though is that sole-traders face the problem of constantly having to look for work. Yes, everyone does but  in a company if someone is not bringing in work someone else will (there overhead will cover your salary for a little while). Sole-traders do not have that luxury and as such have to actually increase their overhead so as to build up a cushion for the in between times. So they have to raise their prices which then makes them competitive with companies and so starts a game of chicken in ever lowering bidding. With companies keeping wages and overhead too low, hurting their workers and potentially their long term viability (see car example above). At the same time sole-traders are one dry spell away from the poor house.

Well, that’s 1500 words and yet we still have not got to under cutting there Doug. Well, I said there was two ways to cut costs, lowering wages and overhead will probably not get anyone to the realm of undercutting or at least very few people will be able to survive that long there. What can get you to undercutting is not finding any archaeology. The math is real simple, take my first job, $300 a day. Even putting me to minimum wage ($5.15 at the time) only cuts $60 a day. Cut overhead by an equal amount still puts you at $180. However, you spend 1 week instead of 3 doing survey work and even at $300 a day that is $1500 vs $2700 (minimum wage and equal cut from overhead). That is how undercutting occurs. It is not because company A is paying their workers 50 cent less and hour (that can be wiped out by on flat tire) but because they have budgeted to not find anything. 10,000 acres, yeah probably find about 1 or 2 sites. That is how undercutting works, it is not penny pinching a few quid here out of a diggers wages, its lopping off whole chunks of projects.

Such practices do not discriminate, sole-traders to the largest companies, male or female, PhD or BA, when people undercut it is not because they managed to save a few quid by switching to a less expensive brand of coffee at the office/home.  (however this can win contracts I will deal with that in the next post, this one is already to long). If the IfA’s ROs or anyone for that matter is worried about undercutting ruining their business (I suspect people are confusing underbidding with undercutting) then there is really only one solution , enforcement and accurate numbers.

I have seen it happen before- company surveys several hundred acres and finds nothing, even previously recorded sites. THPO (tribal historical preservation officer) walks out and within five minutes finds a site, within an hour 8 sites. The report gets kick out and the contractors have to find a new CRM company. Unfortunately,  agencies in charge of regulating are overworked and under staffed. They just do not have enough time to catch everyone who says nothing is there, contrary to common sense. The system would require a much greater investment in policing for this to work better. Moreover, there is no mechanism  to let others know about this sort of behavior. Imagine if you had a board rating how many times a company got its reports denied or had to ask for more money, and how much? That bid for 50% of what everyone else is charging would suddenly look not so great when you realize 30% of their projects have had to receive more funding  equaling $6 million.

Would such a system work? Probably improve the situation but not eliminate the problem. First, you would have to have some way to judge false positives e.g. company bids the same as everyone else but something happens that no one expected. Second, you will always have contractors willing to go with the low bid in hopes it slips by, knowing that they might have to pay extra but hoping they get lucky. Moreover, such a system would only create a floor not eliminate the problem e.g. 1 in 50 projects or 1 in 20 projects they are able to get away with undercutting and getting caught, just enough so they still get work.

That is one possible way to reduce under cutting, and it is NOT cutting wages. As, I hope, I have demonstrated the math of under cutting had nothing to do with wages and everything to do with not finding the archaeology. So next time you see that bid for half, a tenth, of the other bids just know that they are banking on not finding anything, not cutting wages (though they might do that too). For you armchair archaeologists out there, concentrate on finding solutions to the problem of “not finding anything” and stop focusing penny pinching as the solution to the problem of undercutting.

Next Post- Why wages are low (already touched a bit on that) and why a union won’t help.

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