By Jack Stubbs
“The idea was just to get a finger on the pulse of what’s happening in construction. The picture that emerged there is one of an industry that is aging faster than the workforce as a whole,” said Issi Romem, chief Economist at BuildZoom, a company that works with its clients to streamline their contracting needs.
The construction industry has long been plagued by a severe labor shortage, increasing construction costs and pressurized project time schedules and budgets—and a recent study released in late July examining the state of the construction industry provides a national overview of the evolving industry.
The main findings from the study, written by Issi Romem and titled “The Scar From Which The Construction Workforce Has Yet To Recover,” were that the greater shortage of construction labor appears in more expensive states; the overall size of the construction workforce has declined both nationally and in most states since 2005; and states whose home values were hit hardest by the housing bust in 2007 experienced a greater decline in young workers in the industry.
While a shortage of labor exists, its relative severity across the U.S. remains difficult to determine. One way of measuring the severity of the construction labor shortage is to observe the difficulty of hiring workers: the study gathers data from online construction job-postings provided by labor market intelligence firm Greenwich.HR, which aggregates data from a wide range of sources.
The overarching goal of Romen’s study was to determine the relative severity of the construction industry labor shortage across the country. “I take the fact that there is a labor shortage as a given; [the study] only asks ‘if there’s a labor shortage, where is it worse than elsewhere? It’s a relative measure,” he said. “The hard part about measuring shortages is that it’s not enough to [determine] where are there fewer workers than elsewhere,” he said.
The report measures the 45-day job-posting survival rate in 2017 (by examining the number of job postings that remained open after 45 days) in different states. Per this measure, there was the greatest shortage of construction labor in more expensive states such as Massachusetts, New Jersey and California, while the mildest shortage of construction labor was in Mississippi, Idaho, Wyoming and Kentucky.
The construction shortage was highest in expensive coastal states that had a higher cost of living (in terms of median home values) and real estate value. For example, the median home value in 2017 was around $600,000 in Hawaii, $500,000 in California and around $350,000 in Washington; conversely, the median home values in Mississippi, Oklahoma and Alabama hovered around $120,000. The study highlights how higher housing prices make the construction labor market tighter; and a shortage of construction workers raises housing prices by increasing the duration and cost of construction.
Another of the main findings from the report was that the employment rate of construction workers has recovered from the housing bust around 2007, but the construction workforce itself has significantly diminished, according to Romem. “Looking at the big picture nationally, what I see is that the construction workforce grew a lot from 2000 to 2005; those were boom years; the bust didn’t come till around 2006 or 2008,” he said.
Nationally, the construction employment rate fell from 80.3 percent in 2005 to just 69.4 percent in 2010, and by 2016 it had risen to 80.5 percent. Simultaneously, the housing bust of 2007 had a significant impact on the size of the overall construction workforce: from a high of 11.7 million in 2005, the construction workforce dropped to 10.8 million in 2010 and fell further to 10.2 million in 2016.
From 2010 to 2016 following the housing bust during a six-year period, the construction industry across the board continued to decline, even as the housing market and overall population began to pick back up, according to Romem. “From 2010-2016, even as the housing market across the nation started picking up, the construction industry continued to shrink,” he said. Despite a 9.4 percent increase in the U.S. population from 2005 to 2016, as many as 41 states saw their construction workforce be reduced in number; 34 states lost more than 10 percent of their construction workforce; and 15 states lost more than 20 percent of their construction workforce, according to the study. Since 2005, the construction workforce grew in only eight states (North Dakota, South Dakota, Wyoming, Texas, Nebraska, Oklahoma, Hawaii and Colorado).
Among these states, Texas is the most heavily-populated state; but even in this example, its construction workforce growth (10.2 percent) fell short of its general population (22.5 percent).
“Texas, for example, has seen its construction workforce grow; that’s probably a function of the population of Texas growing a lot during this period from 2010 to 2016, but even in Texas, construction appears to be lagging relative to its population,” Romen said.
One of the broader factors potentially contributing to this overall shrinking of the construction industry across the board was that during the six-year period from 2010 to 2016, those returning to work after the housing bust in 2007 might have been pursuing other occupational opportunities.“At this time, a lot of people who were unemployed or had left the labor force who were basically retired or semi-retired in the construction industry returned to work; unemployment rates went up, but the size of the labor pool went down, so a lot of people must have found jobs in other sectors or sectors and were no longer referred to as construction workers,” Romem said.
Another of the primary findings from the report was that construction labor declined more sharply in states whose home values fared worse during the housing bust around 2007 as a correlational relationship, according to Romem. “If you look at states whose home values fell the most during the bust, those places tended on average to also have the biggest drop in the size of their workforce. [While] the fact that your home value has gone down a certain amount doesn’t predict with any certainty that the state’s construction workforce shrank by a proportional amount, on average, the relationship is there and its precise enough to measure.”
From 2005 to 2010, states whose home values fell more sharply during the bust—such as Nevada, Arizona, California and Florida—experienced a greater decline in their construction workforce on average. For example, Nevada experienced a roughly 50 percent decrease in median home value and a 15 percent decrease in the construction workforce, while California experienced a 35 percent decrease in the median home value and a 10 percent decrease in the construction workforce. At the other end of the spectrum, in Utah, the median home value increased by 20 percent during this five-year period and the construction workforce decreased by 8 percent; while in Mississippi, the median home value increased by roughly 21 percent while the construction workforce stayed roughly the same, according to the report.
More recently, the study found that from 2010 to 2016, states whose homes were hit harder during the housing bust lost a disproportionately large share of young workers (those younger than 25), meaning that the construction industry aged significantly over this six-year period, according to Romem. “The fall in the share of young workers was actually much greater than the decrease of the size of the overall construction workforce; so the construction industry has aged quite a bit over this period,” he said.
The study highlights—on a national scale—how, while the construction industry aged less slowly than the overall population in general from 2000 to 2005, the construction industry had a significant fewer younger workers from 2010 to 2016. Economic factors and hiring strategies were some factors potentially contributing to the dearth of younger workers from 2010 to 2016, according to Romem. “Most likely, the construction industry did a very good job of recruiting young workers from 2000 to 2005 and has done the opposite since…in terms of what that could mean behind the scenes, it makes sense that while the construction industry was taking a hit [between 2010 and 2016], younger workers who were less experienced, skilled or socially entrenched in the workplace were probably the first ones let go,” he said. From 2005 to 2016, all but two states—Nebraska and South Dakota—saw the amount of young workers in the construction industry decline, with Delaware (60 percent decline), Vermont (50 percent decline), Hawaii (48 percent decline) and Maryland (46 percent decline) showing the greatest loss of young workers in the industry.
With regards to the current status of the construction industry, Romem thinks that the current shortage of construction labor is predominantly driven by the loss of young workers during the housing bust—“a scar from which the construction industry has yet to recover.” In the bigger picture, one of the factors potentially contributing to the dearth of young workers in the industry has to do with the relatively long trajectory of construction as an industry, according to Romem. “The construction industry has a fairly long tail, longer than most industries in terms of company size, which means that while there are a handful of very big companies, there’s a very long tail of small constructors and specialty trades…and people who start their own companies are going to be disproportionately older among these age groups,” he said.
With respect to the construction industry in particular, which is still recovering from the housing boom in the late 2000s, certain infrastructural challenges mean that it might be harder for the younger demographic to successfully enter the industry now, according to Romem. “To be able to get a job in this industry, it helps to have a family member or a friend who is in one of these trades and who is not much older—but slightly older than oneself—who can help excite someone about this work or even suggest it as an option or introduce them to the right person who might give them a job,” he said. “If an entire generation of young workers was lost to this industry between 2005 and 2010, it makes sense that in the years after that, it’s harder for people to find an entryway into this industry.”
States who lost more younger construction workers during the housing bust are now having a more difficult time filling these vacancies, which could in part have to do with the current occupational mobility of the younger generation, thinks Romem. “It’s those states who not only lost of a lot of construction workers but lost that younger generation who are having a harder time filling jobs now…young workers tend to switch jobs much more frequently than older workers; that’s a stylized fact that’s true pretty much in every industry today and is definitely historically true,” he said. “The absence of younger workers can also affect how hard it is to find workers higher up if people aren’t willing to let go of their workers.”
Looking ahead at the state of the construction industry—and considering the continued importance of the younger generation in filling the gaps left behind after the housing bust—much will depend on the industry’s ability to market itself to younger generations, according to Romem. “It’s my perception…that there might be a resurgence of training programs in this field that are helping the industry as a whole. I think an important factor there is the trade unions,” he said.” “Large construction companies can open training programs and can retain a lot of the labor that they train. But in an industry that is so skewed towards small companies, it’s tricky.”
In terms of how to mitigate the current labor shortage facing the construction industry on a national scale, Romem thinks that the process of rebuilding will be long, given the amount of training it takes to bring in new employees unfamiliar with the trade. “It’s very costly in terms of salary and time wasted to bring on someone on the job who doesn’t have the skills, which makes these companies reticent to take on this training. They’d rather look for people who already know what they’re doing.”
And while bringing in skilled labor from abroad to mitigate the national shortage of those entering the industry is one possibility, Romem does not think that represents a feasible option in the current political climate. “More directly, I think bringing in skilled labor from elsewhere is an option, but whether that’s feasible in the U.S. given that the scale and type of construction is different, is a different question…given the current political climate with our current president trying to shut the door on immigration, seeing some wave of large numbers coming in from Mexico or Latin America just doesn’t seem feasible or likely today,” he said.
In the shorter term, Romem doesn’t think that technological changes in the world of construction, either, will do enough to offset the shortage in the industry. “The last factor is technology; there’s a lot of talk about disruption in real estate and in construction…firms are all trying different variants of the idea of using prefab construction…some of them are talking about making the process of on-site construction smarter as well,” Romem said. “But my sense is that these ideas are in their infancy; I want to optimistically think that 20 years from now, construction will be less labor-intensive and more technologically advanced than it is today; but I don’t think that we are in a place now where that can actually affect our rates of construction in the short-term,” he said.
Over the shorter horizon, at least, it appears that construction labor will continue to constrained, according to Romem. “What is [certain] is that not building enough today will have long-run effects, because how much housing exists in different metro areas is something that is built up cumulatively, and if you spend any period of time with production that is lower than the historical norm, you’re building up a gap over time compared to what you need.”