Labor Shortage Continues to Plague the Construction Industry￼
American businesses are under pressure on multiple fronts, including labor. Since March of 2018, there have been more job openings in the United States than job seekers. That scenario has continued since (except for a brief period when the pandemic induced shutdowns occurred) and has gotten worse, with the gap reaching over 5.5 million.
One industry that is facing a particularly acute worker shortage is construction.
Breaking down the construction worker shortage
The Associated Builders and Contractors (ABC), a national construction industry trade association, says the industry will face a shortage of 650,000 workers in 2022.
ABC’s Chief Economist, Anirban Basu, believes the worker shorter will worsen in 2023 since the current challenge is occurring even though construction spending is growing sluggishly. That will change in 2023, “As outlays from the infrastructure bill increase, construction spending will expand, exacerbating the chasm between supply and demand for labor.”
A McKinsey model projects the $550 billion investment in infrastructure “…could create 3.2 million new jobs across the nonresidential construction value chain.” This would require a nearly 30% increase (300,000-600,000 new construction workers per year) in the nonresidential construction workforce.
Based on the model, the minimum amount of new employees needed for the decade is three million. That’s a tall order considering the number of employees in the entire industry has not risen about 7.7 million (in 2006) since 2000.
The year it all changed
In 2006, the construction industry employed more people than it ever has – 7.7 million people. And then came the Great Recession and the housing bubble bust. The construction market got hammered. In 2011, the construction industry bottomed out as there were 2.1 million fewer workers from the peak in the spring 2006.
Where did the construction workers go? According to a 2015 article from the United States Census Bureau, “over 60 percent of construction workers displaced by the housing bust are employed in other industries or have left the labor market by 2013. We also find evidence of a persistent drop in hiring of younger workers into construction jobs over the last decade that is likely contributing to the current shortage of skilled workers in construction.”
On the flip side, the US Census Bureau notes that workers were moving from other industries into construction to increase employment in the sector during the housing boom.
Construction work was seen as unstable, and young people were not encouraged to enter the field. The shift away from the construction industry impacts today. Despite their being many openings and rising salaries, young people are not entering the profession at a pace that is necessary to sustain the needs of the industry.
The construction worker shortage impacts every market sector
Although the McKinsey article and Basu (ABC’s Chief Economist) focused on nonresidential growth and shortage, the entire industry is impacted. There’s a limited pool of construction workers. If more are siphoned off to fill the gaps in nonresidential construction work, there will be an insufficient amount of residential construction workers.
Residential construction has been facing a worker shortage for a few years already. Homebuilders must compete for employees. So, pay and benefits are rising, and employees are getting signing and retention bonuses.
Meanwhile, there is a housing shortage in the US, and an increasing demand for homes. New home construction starts grew 22% from February 2021 to February 2022, while construction of residences with five or more units increased by 37%.
Severity of shortage differs depending on location
Since construction employment bottomed out in 2011, it had risen steadily in the United States until February 2020. When the pandemic hit, the shutdowns came, and the industry suffered dramatic turns. Some projects were paused, and others were canceled.
From February 2020 to January 2022, construction employment is down in 21 states and DC and up in 29 states. During that time period, Texas lost the second most jobs – 29,400 or 3.8 percent of its workforce.
Getting employees back on the job is not as simple as ‘If you build it, they will come.’ Some construction workers left the industry all together, while others retired. The latter scenario is a particular issue in the construction industry since the industry relies on older workers.
Basu says, “An added concern is the decline in the number of construction workers ages 25-54, which fell 8% over the past decade. Meanwhile, the share of older workers exiting the workforce soared,” said Basu. “According to the Centers for Disease Control and Prevention, the average age for retirement is 61 (in the industry), and more than 1 in 5 construction workers are currently older than 55.
Austin, Texas is in the middle of a boom as businesses are relocating to the city. This means more people and they need to live somewhere. Meanwhile, Central Texas is facing a shortage of of construction workers. The problem is so severe that construction companies have to turn down projects because they don’t have sufficient staff.
Jeff Light, vice president of operations at Hoar Construction, described the boom as unprecedented, and it’s leading to some negative consequences. “That’s driving up the cost of labor because people are willing to pay more for the labor. It’s making projects run longer because there are fewer people to work on projects.”
Concerns in the Lone Star State were not limited to the Austin market. A February 2022 article in a Houston area newspaper was entitled, ‘Supply, labor shortages cause concern in housing market.’ The article notes that new construction has been slowed, due to a shortage of labor and building supplies. They were able to compensate in 2021, but the challenges have grown more serious lately. People continue to adjust to the post-pandemic world. As time passes, will more people return to the job market? It’s something that everyone should hope. The construction industry needs a massive boost to its workforce in order to meet the great demand.