Calling All Hard Hats: Labor Still Lagging Demand

It’s time for some parents and high school counselors to rethink their career advice.

Despite a steady stream of new work nationwide, the U.S. construction industry is continuing to see its labor pool drain. The phenomenon is prompting concern that a lack of skilled workers is “undermining the construction sector’s ability to grow,” according to the Associated General Contractors of America (AGC). Last week, after the Bureau of Labor Statistics (BLS) released its latest jobs report for June, AGC CEO Stephen E. Sandherr voiced concern. “We are at the point now where the lack of qualified workers is holding many construction firms back from expanding headcounts,” he said.

The issue has taken on greater urgency with the new BLS data. It shows construction jobs sat out June’s otherwise stunning turnaround in U.S. employment that saw employers across all industries add 287,000 jobs, about 100,000 more than analysts had predicted. The overall increase heralded a rebound from the May report, which posted anemic — and anomalous — month-to-month gains of just 10,000 jobs, but also featured the mysterious disappearance of 15,000 construction laborers from the workforce.

““It is time for Congress to pass legislation that will help reinvigorate the pipeline for recruiting and preparing students for high-paying careers in construction” ”

— Stephen E. Sandherr, CEO, AGC of AMERICA

AGC also noted that June marked the third consecutive month the construction industry had failed to see job gains despite robust year-to-date increases in most other private and public categories.

“Construction employment stalled in June after declining in April and May, but unemployment among construction is at a 16-year low, while average hourly earnings have accelerated for the past three months, and average weekly hours are very high,” noted AGC Chief Economist Ken Simonson. “These indicators, along with reports from contractors, suggest there is a dearth of qualified workers to hire, not a deliberate pullback in hiring.”

Societal, economic roots

Worker shortages have been a long time in the making. For the past decade or so, Simonson said, parents and guidance counselors have actually steered high school students away from careers in construction in favor of college education, placing particular emphasis on high-tech pursuits. As a result, “courses in shop and vocational training were removed from high school curricula, So that students with a penchant for woodwork and crafts weren’t even exposed to them as potential career paths,” added Anirban Basu, chief economist for both Associated Builders and Contractors and Procore Technologies.

Problems accelerated with the 2008 recession and the long road to recovery that ensued, prompting countless numbers of skilled construction workers to flee for other pursuits. “After members of the construction labor force, including heavy equipment operators, spent years looking for work, they began to see other industries hang ‘For Hire’ signs,” explained Simonson. Added Basu, “Some tossed their hats into the oil and energy arena, some in trucking… Others went to companies like Home Depot.”

As economic conditions improved and tower cranes rejoined urban skylines, a labor gap began to emerge, indicating that those who had fled the industry were not returning. “It may be that after years of unemployment, they didn’t want to take a second chance on construction, fearing the same thing could happen all over again,” Simonson reasoned.

Warning signs

AGC sounded the bell in 2013 when 74% of respondents to its member survey reported difficulty finding qualified craft workers and 53% had trouble filling professional positions. A year later, conditions had worsened, with the 2014 survey finding that 83% of firms faced a shortage of qualified craft workers and 61% were frustrated in pursuing professionals.

Since then, there have been few, if any, signs of improvement, even as the economy surges.

“As other segments of the U.S. economy continue to add jobs, a growing number of construction workers and job seekers may [still] be shifting to other industries,” Basu conjectures. “Wholesale and logistics, e-commerce and other pursuits are proving attractive to electricians, as well as to lower-skilled laborers unable to secure jobs elsewhere.”

That’s the same group that some contractors are now being forced to tap into, for lack of experienced workers. Simonson believes that is one reason why U.S. construction’s unemployment rate dropped more than half a point — from 5.2% to 4.6% — between May and June.

Making the pinch even more acute is the fact that U.S. construction activity continues to accelerate. Although Census Bureau data found U.S. construction spending dipped 0.8% in May, that followed broad-based gains earlier in the year. Spending for the first five months of 2016 had outpaced the same period in 2015 by 8.2%. And May’s construction put-in-place number was up 2.8% over the previous year.

Other evidence came last week from Dodge Data & Analytics, which reported an 11.2% surge in June for its Dodge Momentum Index, which predicts future construction activity. This came on the heels of last month’s report, which saw the value of construction starts between April and May increase 5% to a seasonally adjusted annual rate of $636.7 billion. June’s starts numbers are due out next week.

“It appears there will be plenty of activity in the remainder of 2016 – if contractors can find the workers they need,” Simonson said.

While the iron is hot

Neither Simonson nor Basu foresees labor shortages sidelining industry momentum for the foreseeable future, but warn of long-term consequences if the industry can’t more aggressively train and attract qualified labor. “The most obvious impact is rising construction costs due to higher pay rates among labor and slower schedules for completing projects,” Basu said.

One problem, he noted, is that construction has not automated repetitive tasks via technology as extensively as other industries have in recent years, making it as reliant as ever on human labor.

“They say that money talks; well, cheap money is speaking very clearly right now, and it’s telling us to invest in our future”

— Paul Krugman, Economist, Princeton University

With that in mind, AGC and others have prevailed upon Congress to reauthorize the expired Carl D. Perkins Vocational and Technical Education Act of 2006. “It is time for Congress to pass legislation that will help reinvigorate the pipeline for recruiting and preparing students for high-paying careers in construction,” urged Sandherr.

Even with federal help, though, “efforts really have to occur at all levels of government,” Simonson said. “This is very much a local issue involving both public and private sectors. Local construction chapters and construction firms need to engage their communities, working with schools, shops and union apprenticeships to step up recruiting and training.”

Adding to the urgency is the unusual opportunity currently presented by the financial markets. Interest rates are now at record lows. Writing this week in The New York Times, Princeton University economist Paul Krugman issued a passionate challenge. “Why not borrow money at these low, low rates and do some much-needed repair and renovation? This would be eminently worth doing even if it wouldn’t also create jobs, but it would do that, too… They say that money talks; well, cheap money is speaking very clearly right now, and it’s telling us to invest in our future.”

Should even greater investment be forthcoming, of course, the demand for workers will rise even more.