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Construction’s Labor Quandary Is An Old Problem With New Complications

David Meade has spent five years as executive director of Building Skills New York, a nonprofit that has helped link hundreds of job seekers with entry-level positions in construction. It’s a rewarding job placing workers into positions that may jump-start a career shift, but this year, it’s required employers to be much quicker to respond. 

“We’ll get individuals lined up for an interview, and if the firm looking to hire them takes an extra minute, entry-level applicants are on to the next job,” he said.

A nationwide boom in projects and industry consolidation have exacerbated a construction labor shortage.

The business press is filled with stories of labor markets out of whack due to pandemic-era economic shifts and trends. But in the construction industry, which has had a shortage for years, the combination of a long-simmering labor shortage and rising material costs has begun to put the brakes on the industry’s recovery. A rare moment of simultaneous national demand and consolidation in the industry has combined with long-standing trends to create a unique moment for the sector.

National Association of Home Builders Chief Economist Robert Dietz said the entire industry — residential, multifamily and commercial alike — is short 344,000 positions, creating a “long-term challenge for the industry.” In some cases, material shortages have even meant less hiring of workers, since projects are being delayed or pushed back. 

“The shortage of labor and materials and associated cost increases are resulting in a suppressed construction recovery,” said Sage Policy Group Chairman and CEO Anirban Basu, an economist. "We still see much more residential single-family permitting activity than we did in the pandemic, and a rush to the suburbs, but we’re not experiencing the full force of that momentum because of those skills and material shortages.”

But the common refrain coming from industry leaders about the dearth of skilled workers has taken on a different dimension during the coronavirus pandemic. Part of it, according to Project Management Advisors Vice President Mark Knott, a longtime construction manager who advises firms on construction and project management issues, is that everything is happening at once. Labor and materials issues are compounding problems; if there was just a shortage of, say, steel, timelines could be altered, and it would be possible to control schedules, within reason. But the nature of the crisis this summer means the market won’t necessarily fix itself anytime soon.

“I think material will correct itself faster than labor,” Knott said. “Ultimately, the system is set up to correct itself. Prices will push questionable projects to be delayed, and decrease the labor demand, which will create more opportunity to clear the pipeline.”

Knott said that two recent shifts in the construction world have exacerbated the labor problem, removing the slack that would keep things moving forward at a more orderly pace.

First, as the nation begins to emerge from the pandemic and projects restart, accelerate or break ground, demand is rising everywhere. In some places, construction totally stopped. The sudden demand for workers in all corners of the nation isn’t normal; traditionally, some workers would follow demand. Now, he said “everyone is peaking at the same time,” so you can’t backfill by, say, having workers in Wisconsin fill in a gap in Chicago. 

Second, and perhaps more systemic, the construction industry, like many others, has gone through a wave of consolidation. Big general contractors have increasingly bought up subcontractors, because while the margins on entire jobs have been getting thinner, specialized subcontractor tasks still make decent profits. So, by purchasing smaller shops, general contractors see more overall profits for each larger project. But, again, that leads to less slack: If there were, say, 20 electrical specialists in one region before, and now 15 are part of a larger general contractor, then only five are truly flexible and can move from job site to job site. 

“It’s become much more difficult to disperse and sequence the labor,” Knott said.

There’s always been a challenge in choreographing specialist labor, and now consolidation has made that much worse.  

And again, the slack is truly gone. Apartments and multifamily construction is booming despite these headwinds, National Multifamily Housing Council Director of Research Chris Bruen said. 

“Multifamily construction has really ramped up in the past decade or so,” he said. “If you look at the rate of job openings in that period as well, you also see wages increase a bit, which means they’re trying to attract more labor. Employment has actually increased quite a bit, the industry just isn’t finding as much labor as it would like.”  

These issues make existing labor challenges — what Basu calls “structural, cyclical and behavioral” — that much more pressing. The long-term mindset shift in the U.S., that the path to the middle class wasn’t shop class and construction, but rather postsecondary education and the service industry, has discouraged many from seeking construction work. Jobs in construction trades tend to be solid paths to the middle class, but as Basu said, the labor force isn’t ready or trained to take advantage of these opportunities. Add that to the aging of the construction sector, early retirements after the Great Recession and gridlock in immigration debates in D.C. (which could help bring in more skilled workers), and it’s increasingly difficult to quickly grow the labor force.

“You can’t create construction workers out of thin air,” Basu said.