Employment in Construction: Where are the Skilled Workers?
Over the past several years the number of employers, who have indicated that they were having trouble filling positions for skilled construction workers, has risen from reports of a few isolated cases around the country to reports of a widespread shortage in the industry.
A National Epidemic
The National Association of Home Builders (NAHB) has conducted several surveys about labor shortages in construction among its members over the past few years. NAHB reported that in its third quarter 2015 survey of remodelers, 80% of respondents reported a shortage of finished carpenters, up from 72% in its third quarter 2014 survey. Increases in reported shortages were noted in other specialties such as electricians—44% vs. 37% in 2014, and roofers—45% vs. 35% in 2014.
In a similar NAHB survey of single-family builders in June 2016, 72% of respondents reported a shortage of Rough Carpenters vs. 69% in its June 2015 survey. The reported shortage of roofers went from 40% in 2015 to 45% in 2016. In its December 2016 survey of single-family builders, 78% of respondents reported “Labor Cost/Availability” problems, up from 71% in 2015 and 30% in 2012. It was also their top concern going forward into this year (82%).
A 2016 survey by the Associated General Contractors of America (AGC) reported that 69% of their respondents were having difficulty filling some hourly craft positions. (There may have been some minor easing in this area recently as the AGC’s 2017 survey reported that 66% of respondents were having trouble filling some hourly craft positions.) Also, 38% were having difficulty filling some salaried field positions and a third filling some salaried office positions. Half of respondents had trouble hiring Project Managers/Supervisors.
Similar to the NAHB surveys, the craft positions that were hardest to fill were carpenters (60%), electricians (53%), and roofers (50%) according to the 2016 AGC survey. Other positions that were hard to fill were plumbers (50%) and concrete workers (49%).
These survey results have been reaffirmed by informal discussions that we have had with general contractors and other construction companies. Note that the reported shortage is for certain skilled workers, not all skilled workers and not unskilled workers. Some of the available employment data may mask these shortages as the data often do not distinguish between skilled and unskilled workers.
Construction employment peaked during the housing boom/bubble in April 2006 at 7,726,000 (seasonally adjusted) according to the nonfarm payroll survey data from the U.S. Bureau of Labor Statistics (BLS). Construction employment then fell to a low of 5,427,000 in January 2011, its lowest level since February 1996 when construction employment was 5,415,000. As of March 2017, construction employment had rebounded to 6,882,000. That was still well below its 2006 peak and roughly in line with employment levels in early 2004.
Where Did All the Skilled Workers Go?
As the numbers indicate, there was a reduction of 2.3 million employed workers in construction from peak to trough in just under five years. Of course, not all of the workers who lost employment were skilled workers. Construction companies tried to retain their best workers for as long as possible, but as the construction recession continued, many were forced to let those workers go.
Not surprisingly, as construction employment constricted, the brunt of the reduction fell on younger workers who were often less skilled. Younger workers are also more flexible in terms of where they choose to live and work and in terms of in what industries they are willing to work and seek employment. Given the poor employment prospects in construction during that period, few young people sought employment in construction. As a result, both the number of young people employed in construction and the percentage of young employed construction workers fell dramatically.
The Bureau of Labor Statistics (BLS) Current Population Survey (CPS) reports the annual number of workers employed in construction and extraction occupations (not just construction) by age cohort from 2002 through 2016. Although the survey combines construction and extraction, the nonfarm payroll employment survey indicates that construction employment represents over 85% of that employment and for a little over half of those years, 90% or more.
The CPS reports employment peaking in 2007 (11.9 million), hitting a low in 2012 (7.0 million), and making a partial recovery by 2016 (7.9 million). Peak employment for workers ages 16 to 24 years was in 2006 (1.6 million), for workers ages 25-54 years was in 2007 (8.8 million), and for workers ages 55 years and over was in 2008 (1.6 million). Both ages 16-24 years and 25-54 years hit their lows in 2012 (0.7 million and 5.2 million, respectively). Workers ages 55 and over hit their low in 2011 (1.0 million).
The Aging of the Construction Workforce
However, even more telling is the shift in the age distribution among employed construction workers. As a percentage of workers, the peak for the two younger cohorts was in 2002 (the earliest the data are available) with 13% of workers ages 16-24 years and 76% of workers ages 25-54 years. That year was the low point for workers ages 55 and over, 11%. The percentage of the youngest workers (ages 16-24 years) began to fall in 2007, hit a low in 2010, and has since stabilized at a little above 10%.
More dramatically, the percentage of mid-age workers (ages 25-54 years), the ones from whose ranks are most often drawn to replace skilled workers leaving the industry (generally due to retirement), held steady until 2012, then began falling steadily from around 75% to 71% in 2016.
As a result, there has been a shift to a greater reliance on older workers (ages 55 and over) to fill positions in the construction workforce. Recovering from a post-recession low of 15% in 2011, their percentage has grown steadily, hitting a record high 19% in 2016. Thus, the industry is relying heavily on its older skilled workers, who are headed to retirement without sufficient younger workers to replace them.
After the Construction Recession Employment
A 2015 Census Bureau research paper (Where Did All the Construction Workers Go?) suggests what happened to many of these workers. According to the study, roughly 60% of those construction workers who became unemployed for more than three months between 2006 and 2009 had not returned to the construction industry by the end of 2013. It would seem to be very unlikely that many of those workers subsequently returned to the construction industry. Among the findings regarding these workers (along with our observations, inferences, and analysis) were:
- Some construction workers found employment in the oil and gas fields as the fracking boom took off. There was particular need for heavy equipment operators (these are skilled workers). However, according to the Census Bureau analysis, this accounted for less than 5% of workers who left the construction industry.
- Roughly a third of unemployed construction workers eventually left the industry altogether. The data suggest that many found employment as general laborers, landscapers, and truck drivers. Given the skills of some of these workers, some likely found work in manufacturing.
- Roughly a quarter of unemployed construction workers eventually left the workforce (although some may have become self-employed). Some workers who had emigrated to the United States for work in construction left the country for opportunities outside of the U.S. (along with some native born U.S. citizens?) Some older workers simply retired. Some went on disability (various studies indicate that, given current disability rules, most workers once they qualify for disability remain on disability, never returning to any kind of work). Some may have stayed home to support young children and a working spouse. And, given normal demographics, some died.
The usual pattern is for the construction industry to lose some skilled workers over time but at the same time train new workers to take their place. In a normally growing industry, the number of new workers being trained exceeds those skilled workers exiting the industry. However, during the recession in construction, many (but not all) training programs were suspended or cut back. With few openings in the industry, there was little attraction to construction for a young person. As a result, the number of newly trained workers fell noticeably short of the number of skilled workers exiting the industry.
Now that construction activity has been on the upswing for several years, suspended training programs have been restarted, existing programs have been expanded, and new programs have been started. However, given the length of time to train a worker for the needed skills, the inflow of newly trained workers has lagged demand. Also, workers successfully completing a training program still require significant time in on-the-job training to become truly proficient in their area of expertise. Depending on the skill, this can take anywhere from two to three years or longer under the tutelage of a veteran skilled worker. And, as noted, those veteran skilled workers are in short supply.
The Challenges of Today’s Construction Industry
There are three problems facing construction’s ability to attract younger workers. First, there is the perception that construction work is dirty, exhausting work under adverse conditions, such as cold weather, with long hours. This is certainly the case in some situations. But at the same time, there are many jobs in construction that do not fit this paradigm. In some of these jobs, the work occurs predominately or completely in an office or factory-like setting.
Second, young people have observed or are aware of the relatively recent recession in construction and are reluctant to enter a field with the possibility of long periods of unemployment. Certainly any sector of the economy faces the prospect of a downturn. A national recession usually adversely affects all sectors of the economy. However, construction’s outlook is brighter than most partly due to its recent recession. Many areas of construction are below their long-term trends, suggesting that, short of a national recession, demand will remain strong for a number of years. In particular, construction of single-family housing units is rising but is still significantly below the nation’s long-term needs. To the extent that demand for single-family houses lags for whatever reason (fear of homeownership, difficulty in qualifying for a mortgage, etc.) demand for apartments, hence for multifamily construction projects, remains strong.
Third, there is the problem that we classify as the “mothers, don’t let your children go into construction” syndrome. This is the result of the argument that every young person should go to college. It is certainly true that many of the jobs in our increasingly high tech economy require additional learning/training beyond high school. For many people this does mean college. But lack of a college degree does not necessarily condemn an individual to a low paying job if they have the proper training and desire in certain fields. Construction is clearly one of these fields.
It is true that construction employs a number of unskilled (or should we say, low skilled?) workers who may not require even a high school diploma. These tend to be low wage jobs with limited prospect for advancement (although a hard working individual who is willing to learn on the job and acquire skills can do extremely well over time). But more and more of construction jobs require the ability to work with computers and math. Thus, although a college degree is not necessary, advanced skills acquired in a technical school or a two-year college will well serve a potential worker and provide for a good starting salary.
After a few years, a skilled worker can earn annual income in the mid to high five figures and a six figure income is often possible. Here are a few examples of average annual income in 2015 from the May 2016 Occupational Employment Statistics from the BLS report for the following construction occupations:
- Construction Managers – $99,510
- Construction Trades Workers – $47,580
- Brick Masons and Block Masons – $53,440
- Carpenters – $48,340
- Electricians – $56,650
- Elevator Installers and Repairers – $76,860
- Pile-Driver Operators – $61,740
- Plumbers, Pipefitters, and Steamfitters – $56,030
Seasonally adjusted average hourly earnings (AHE) in construction, which includes both skilled and unskilled workers, are typically a little over 9% higher than overall private AHE. In the BLS April 2017 employment report, March construction AHE were 9.2% higher than private AHE.
So how are employers coping with the shortage of skilled construction workers?
The very short run – the supply of skilled workers is largely fixed (in economic speak, inelastic supply). As a result, wages for skilled workers have been rising. Construction firms have also been forced to slow the pace of their projects as they move their available skilled workers from one project to the next. The larger firms are also exploring the use of technology—using machinery (capital) to replace some work functions, using software to better schedule their workers, using more prefabricated parts that easily fit together on site, and in some rare cases using more modular units that can be assembled at the worksite.
The medium run – the supply of skilled workers is more flexible (more elastic). As newly trained workers obtain employment, wages in those crafts will rise more slowly as the shortage is lessened. More firms, including smaller ones, will have time to explore and invest in capital that leverages the output of the skilled workers they do employ.
The long run – the balance between the supply of and the demand for skilled labor will be dictated by the interest of young people to enter into the construction industry, the availability and success of training programs, and the cost of capital equipment that either replaces skilled labor or increases the productivity of skilled labor relative to the wages for skilled workers.
Special thanks to Ken Simonson, Chief Economist, Associated General Contractors of America (AGC), for his helpful comments and suggestions.
Bernard M. Markstein is a Senior Advisor to ESI and President and Chief Economist of Markstein Advisors, an economic consulting company providing analysis and forecasts of the national economy and construction activity. Dr. Markstein’s experience includes analysis and research in housing, residential and nonresidential construction, real estate, financial markets, macroeconomic issues, and regional markets.
Tags: construction, development, employment, Present Value, revitalization
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