The construction labor shortage is no new concept, with the demands of the federal infrastructure bill, new private construction, and the impact of the pandemic still weighing on workers around the country and heavily impacting their employers. At this point, “The construction worker shortage has reached crisis level,” said Home Builders Institute president and CEO Ed Brady.
Recent information from the Bureau of Labor Statistics should bring good news, as a new report noted that average hourly earnings for production and nonsupervisory employees in construction rose to $32.19 in May 2022 — a 6.3% increase from a year ago that serves as the highest year-by-year industry wage gain in 40 years.
Economists are noting that these wage increases are coming more with entry-level industry positions to fill the much-needed gaps in the workforce, and that increases aren’t happening enough across the board to keep the industry’s gains competitive. Generally, it looks like companies are paying more without getting any increased productivity or incentivizing all levels of the industry.
Crucially, the recently released information from the Bureau of Labor Statistics showed that the gap between what the construction industry pays its workers and what other industries pay their workers has shrunk during the pandemic.
“Construction still has a considerable premium, as I call it, in what it pays the average worker, compared to other industries,” said Ken Simonson, chief economist for the Associated General Contractors of America.
“But that premium has shrunk…the average hourly wage in the rest of the private sector has come up, and that is squeezing what contractors are offering as a premium to go out and work in 100 degree heat.”
“Despite steeply rising pay for hourly workers, job openings in construction hit an all-time high at the end of April, while the industry’s low unemployment rate suggests experienced workers are scarce.”
– Ken Simonson, Chief Economist, Associated General Contractors of America
Simonson noted that average earnings for craft workers in construction rose by 6.3% from May 2021 to May 2022, but average earnings in the private sector as a whole rose by 6.5%, showing that the construction industry needs to do more to better incentivize its job market.
As the industry’s so-called premium shrinks, it only makes it more difficult for contractors to attract new workers in what is usually viewed as a demanding and often dangerous line of work — and companies will need to keep adding more in order to meet the expectations of the industry as it currently stands.
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A recent model from McKinsey & Company noted that the demands of the new Bipartisan Infrastructure Law would mean 300,000 to 600,000 new workers entering the industry yearly, which is a tough sell considering that in October 2021 there were still 402,000 unfilled construction positions nationwide according to the Bureau of Labor Statistics.
“It is encouraging that contractors were able to add workers in May, but they will need many more to meet the increasing demand for infrastructure and private nonresidential projects,” added Simonson. “Despite steeply rising pay for hourly workers, job openings in construction hit an all-time high at the end of April, while the industry’s low unemployment rate suggests experienced workers are scarce.”
“We learned our lesson and will be building in those higher labor costs accordingly for future work,” he continued. “Everyone I talk to in the industry has had this same realization.”
Others are noting that the industry’s financial situation has mostly resulted in raised wages for entry-level positions, making it so that contractors are paying more for fewer workers than before.
“We’re going to see jobs that were predicted to cost $500 million end up costing $600 million, because you’re going to need to pay people more.”
– Nick Grady, construction analyst, RSM US
“The ‘unskilled laborer’ is among the fastest growing occupational categories within construction,” said Associated Builders and Contractors chief economist Anirban Basu. “Contractors are still hiring aggressively, but they’re often just throwing bodies at jobs, without those bodies being more productive…While you see many contractors still staffing up, the expectations regarding profit margins are flipping. They’re becoming more pessimistic.”
That could lead to a huge direct increase in the price of projects, too. “I anticipate that we’re going to see quite a bit of wage growth, just because there is high demand for construction services and so few employees,” said Nick Grandy, a construction analyst at RSM US.
“We’re going to see jobs that were predicted to cost $500 million end up costing $600 million, because you’re going to need to pay people more.”
“We’re in maybe the tightest market ever in the number of job openings for construction,” Simonson added. “The implication is that construction firms, including homebuilders, would have brought on twice as many workers as they did, if they could have found enough qualified workers.”
“We are at an inflection point,” Basu said. “Whatever the level of shortage has been in construction with respect to the workforce, it’s about to get worse.”
At this point, it’s up to companies to find a way to reverse course, even if it eats into profit margins.