The State of Labor Supply in the Construction Industry 02/06/20
It is well known that the construction industry is one of the most sensitive industries to economic cycles. The most recent recession exemplified this fact; between 2006 and 2010, employment in the construction industry sank 25%, leading to 2.5 million jobs lost according to Andrew D. Paciorek, the Federal Reserve Board (FRB)’s Senior Economist. The table below shows data from the U.S. Bureau of Labor Statistics on this change in construction employment:
If we look further back, the Center for Construction Research and Training states that from 1992 to 2010, payroll employment in the construction industry experienced more expansion and contraction than any other non-farming industry. These ups and downs are well documented, and expected. After a downturn, we start to see a gradual increase in employment and construction, which ultimately leads to a once again flourishing industry. Today, though, we are seeing a different landscape than in previous cycles. Though construction volume has increased, employment increase in construction has lagged behind.
According to the FRB, during the 1981-1982 recession, 22% of construction jobs were lost, which was only 3% less than our most recent recession. By the end of the 1980s, though, employment in the sector was back to its previous full employment numbers. Today, over a decade since the recession of 2008 began, the national worker shortage in construction is still high. Per Paciorek of the FRB, many construction workers who became unemployed during the 2008 recession “flowed out to employment in other sectors of the economy,” with this new outflow from the industry “roughly [doubling] during the bust.” This is in congruence with statements by Anirban Basu, chief economist for the Associated Builders and Contractors (ABC). Basu recently indicated that the construction industry nationwide is still in need of over 500,000 workers.
In addition, an aging population is leaving many construction jobs, and younger generations are not replacing them. A recent national poll of 18 to 25 year old people conducted by the National Association of Home Builders (NAHB) found that the majority of young adults (74%) know which career they want to pursue, yet of that majority, only 3% are interested in working in construction. Furthermore, NAHB found that of the 26% of young adults who do not know what career to pursue, 63% responded that there was little or no chance they would consider working in construction.
According to Jerry Howard, NAHB’s CEO, the construction workforce can be split into two categories, domestic and international. Many members of the international workforce have returned to their home countries, where improved economic conditions have allowed for more comfortable living.
Through the last century, higher education has become more accessible than ever before, leading to more basic jobs requiring higher education. This has no doubt put a stigma on laboring jobs that do not require a college degree. The pay of a construction laborer is also much lower than the average college graduate. According to U.S. News, the median construction worker makes $31,910 annually; with Time Magazine reporting that the average pay for an individual with a bachelor's degree is $50,556. Given the social and economic pressure put on young adults, construction jobs have become a seemingly unappealing profession.
Despite the serious national shortage in construction labor, The Commonwealth of Massachusetts’ construction industry is performing surprisingly well. According to FRB economic data, Massachusetts is at the very top of the chart for construction employment as of March 2017. The state has over 150,000 individuals employed in the construction industry. This peak in construction employment coincides with Massachusetts’ overall unemployment of 3.1%, a 16-year low. The Associated General Contractors of America (AGC) published statistics on Massachusetts that show an unprecedented 5,300 construction jobs being added from July 2016 to July 2017. Even in 2016, a total of 3.2 million construction man hours were logged on major development projects, a 9.6%, or almost 280,000 man hours, increase from 2015.
A graph depicting the year-over-year increase in construction spending from 2012 to 2017.
With the recent worldwide surge in urbanization, new development projects, and associated construction jobs, will continue to accelerate. According to the International Organization for Migration, an estimated three million people migrate to cities globally each week, and the United States is no exception. As leaders in various industries, like General Electric, move their offices and corporate headquarters from suburbs to cities, cities across the country are now seeing record population growth, fueled in particular by young professionals seeking to live close to work. Furthermore, many technology startups are choosing to plant their roots in cities, where there is abundant opportunity for networking and business growth, creating additional jobs.
The increased demand for urban housing and office space is putting new pressure upon cities to build dense, sustainable buildings, which will inevitably lead to continued growth in construction jobs. Whether young people will choose to work in construction, and help fill this demand, will be a major part of what determines whether cities will be able to continue growing in the long term. However, with growth in robotics and automation on a steady upward trend, it is likely that in the coming years we will see new technologies that will perform certain construction tasks with limited, if any, human intervention. Already, robots and 3D printers are being used to construct smaller buildings, and a bricklaying robot designed by Construction Robotics is being used on a number of United States job sites to construct masonry and facades, increasing productivity significantly. Technology will likely take much pressure off of the construction workforce in the coming years, increasing builders’ capacity and ensuring that cities can keep up with increasing demand for new space even as the construction industry falls out of favor amongst young people.
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