Examining Wage Transmissions and Spillover Effects across the US Construction Trades Using Multivariate Time-Series Methods

Abstract The US construction industry grapples with acute labor shortages and escalating wage pressures driven by the surge of megaprojects such as data centers, semiconductor fabrication facilities, and large-scale transportation infrastructure. These wage pressures do not arise uniformly across the industry but often emerge within tightly interconnected skilled trade labor markets, where wage changes in one trade may propagate to others through labor mobility, competitive hiring, and coordinated project delivery requirements. However, existing construction labor research has largely treated construction trade wages as independent processes, overlooking the potential for wage transmission and spillover effects across functionally linked trades. This study addresses this gap by examining wage transmission mechanisms and measuring wage spillover effects between two major construction trades, electrical and mechanical contractors. Quarterly wage data for electrical and mechanical construction contractors across 12 US Midwestern states and at the national level from 2000 to 2024 were collected from the US Census Bureau and analyzed using multivariate time-series methods. The novel contributions of this research include: (1) examining wage transmission and spillover effects between two functionally interdependent trades (i.e., electrical and mechanical contractors); (2) identifying wage interdependencies at both the US national level and across 12 Midwest states, capturing regional heterogeneity and localized labor market dynamics; (3) uncovering asymmetric lead-lag wage relationships between electrical and mechanical contractors; and (4) quantifying the dynamic propagation of wage shocks, providing predictive insights that static, cross-sectional analyses cannot capture. The findings of this research are expected to assist contractors, owners, policymakers, and other construction stakeholders in understanding dynamic wage transmissions and spillover effects, enabling more accurate labor cost estimation, improved contract escalation provisions, and regionally targeted workforce development strategies.