The Construction Labor Shortage Is Set To Intensify Over Next 6 Months
Construction labor has long faced a generational challenge finding enough skilled workers. But the second half of 2022 may see that long-term problem really take its toll as inflation, federal spending, an aging workforce and persistent shortages combine to drive up costs, wages and the overall price of building anything in the United States.
“The next six months will be like the last six months, only worse,” Associated Builders and Contractors Chief Economist Anirban Basu said. “After accounting for inflation, construction spending has likely fallen over the past 12 months. As outlays from the infrastructure bill increase, construction spending will expand, exacerbating the chasm between supply and demand for labor.”
There are roughly 25% more unfilled construction positions than hires, said Nick Grandy, a construction and real estate senior analyst at the consultancy RSM US. He compares the current labor situation to the early pandemic toilet paper shortage, when a lack of inventory created a market filled with desperate would-be buyers.
“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,” Grandy said. “We’re going to see jobs that were predicted to cost $500M end up costing $600M, because you’re going to need to pay people more.”
Nearly every statistic about the construction labor force shows a significant shortage becoming more endemic and harder to fix during a historically challenging labor market. All this is converging right as a significant federal infrastructure bill adds to the sector’s demands, with $550B in approved spending requiring an estimated 3.2 million new workers.
There are roughly half a million job openings in the industry, per April projections from the Bureau of Labor Statistics, higher than the previous high of 438,000 in April 2019. But that need is unlikely to be met by a rapidly aging workforce.
Since the end of the Great Recession, the share of construction workers aged 25-54 has dropped 8%, while the share of those 55 and over has risen, according to the Associated Builders and Contractors. Twenty percent of workers are 55 and older, and 61 is the average retirement age — meaning a fifth of the industry is at risk of leaving within the next six years.
Grandy has studied data about quitting versus firing/layoffs in the industry, and since the pandemic, it has swung significantly toward more quits, which he reads as a sign that those in the older portion of the workforce were taking the opportunity to retire early.
The extreme competition for workers right now hasn’t helped. Between December 2019 and December 2021, construction wages grew 7.9%, according to Barry LePatner, an attorney, author, and construction and infrastructure expert. At the same time, wages in transportation and warehousing shot up 12.6%, he said, tempting experienced workers away from construction and creating better alternatives for those who can’t or don’t want to pursue four-year degrees.
Data from the St. Louis Fed shows wages overall have struggled to keep up with inflation, so even modest gains over the last year haven’t increased the spending power as much as workers would like.
“The increases in salary and benefits to new workers are addressing inflationary increases, which, undoubtedly, will lead to price increases for projects along with product and material increases from supply chain problems stemming from the pandemic,” LePatner said.
Construction costs have already been rising, said Grandy, but he said the price increases of the last six months have been mostly due to material shortages — construction input prices are up 21.4% year-over-year, according to ABC research.
Over the next half a year, Grandy said he thinks labor issues will become the driving force for cost increases. With a sector unemployment rate at 3.8%, he said, there is simply nowhere to go to meet rising demand. The current immigration shortage also significantly reduces the amount of talent that can readily fill empty jobs.
The labor shortage threatens the effectiveness of new federal infrastructure spending, with higher costs diluting the power of the $550B in new funding. LePatner is unsure if current training programs to bring more workers online can alleviate the shortage.
“The question is whether strategies by unions and nonunion training programs can be implemented fast enough to develop a workforce that will achieve the benefits infrastructure funding is intended to foster,” he said.
There have been signs via some training and skills programs that construction jobs have offered tempting alternatives to certain sectors. David Meade, executive director of Building Skills NY, said he has seen former retail employees, for instance, take to construction training. But so many challenges remain to expanding training to different, more diverse demographics, especially post-pandemic. Challenging childcare situations and government offices holding restrictive hours could be barriers for many potential workers to obtain paperwork, apply for new jobs and be able to make the time commitments necessary to work in construction.
Meade said Building Skills had a committed workforce pre-pandemic, but the last few years have disrupted many training programs, and it’ll take time to ramp up to where things were in 2019.
Grandy said the best, more immediate way to fill the gap is to promote more immigration — there are a lot of workers in other countries who would gladly come to the U.S. for a shot at greater, and rising, hourly wages. But the stalled nature of immigration reform, amid a series of current political crises, makes significant change unlikely.
He also added that construction firms need to be focused on both hiring and retention policies, and revisit both in light of rising demand and an expected increase in pay. With so much competition, now is not the time to lose an employee.
And while there may be a worker shortage, there is also an abundance of construction tech startups and founders claiming their technology can roll out quickly, and build with fewer workers, and in many cases, less training. Crunchbase found that investors poured $2B into construction tech startups in 2021, double that of the previous year.
For instance, Cuby, a homebuilding startup focused on modular construction, can erect a home with factory-made panels with 10% of the total labor force, and a significant savings ($150 versus $260 a SF), according to co-founder Alexsandr Gampel. But the firm’s advanced manufacturing solution is still in the process of rolling out — pilot programs outside of Philadelphia are just getting started, and the startup is far from achieving scale.
LePatner is skeptical of tech’s ability to make a dent in the current labor challenge, arguing that the industry’s relatively glacial pace of technological innovation means these new tech-enabled workers will “unlikely play a significant role without extensive on-the-job training with these technologies.”
Grandy agreed that an expansion of technology will help the issue, but also notes that while much of the labor-saving technology out there, such as modular and prefab building systems, have advanced, they haven’t yet gotten to the point where they are significantly reducing the total workforce needs. The unique nature of different job sites means that the industry just hasn’t reached the level of adoption and automation that, say, drives the automobile industry.
In the long run, many hope the pandemic hastens a re-evaluation of the construction trade.
Home Builders Institute President and CEO Ed Brady said “educators, parents and students themselves once again are seeing how valuable trade skills can be for young people entering the workforce today.” HBI’s spring labor market report found construction pay averaging nearly $50K annually, with the top quartile taking in $76K or more at a time when the nation’s median wage is $46K and the top quartile is $69K.
But filling the gaps in the labor pool will likely require time and training, and it won’t alleviate the issues plaguing the industry in the immediate future. Basu, formerly the CEO of Sage Policy Group, said with an aging workforce, and job sites looking pretty much the same way they’ve looked for decades, it’ll take a long time, and lots of effort and investment, to move beyond the specific set of circumstances that have created such a persistent — and worsening — shortage.
"It's a perfect storm," Basu said.