Latest Data Offers Little Hope for Owners Seeking Signs of Lower Construction Prices

As US Construction Industry Hits Record 8 Million Employees, Talent Woes Mount

 

The Wall Street Journal this week declared Gen Z "the toolbelt generation" as more young workers enter skilled trades, underscoring data from the Saint Louis Federal Reserve that the US construction market recently passed 8 million employees, a clear sign of the industry’s continuing strength. 

But beneath the good news around the resiliency of the construction industry, and the fact that the industry is continuing to add capacity in the form of more workers, lies more troubling data for buyers of construction services and for the industry as a whole. Statistics relating to unfilled jobs and also the rise in hourly wages point to a sector that is still very much struggling to meet demand.

Potentially worse, the demographics of the industry’s labor force are such that it will somehow need to bring on even more workers each year, just to replenish the ranks it loses. While, perversely, this condition may bolster contractor backlog levels and profitability in the short run, it also likely spells a more challenging management environment for the industry and also more frustration from buyers of construction who are already contending with higher interest rates and materials costs and are increasingly frustrated by an industry that seems to be shrugging as it passes along cost increases at a rate that outstrips inflation.

Ongoing Staffing Challenges Mean Construction Wages Are Rising Faster than Inflation

The last few years have been a roller coaster ride for real estate developers and other building and infrastructure owners looking to undertake construction projects. A steep rise in materials prices followed by a spike in interest rates has meant sharp escalation in the cost of projects. While these increases appear to be easing, the cost of construction appears likely to continue to rise faster than inflation due to two longer term characteristics defining the industry - a structural shortage of skilled construction workers and decades of stagnant productivity. 

According to the Saint Louis Federal Reserve report, even as the industry’s employment levels have reached a new record, the industry is continuing to grapple with a near record 470,000 open jobs. Further, the latest Labor Department report shows that while overall private sector hourly wages increased by 4.47 percent in the United States in 2023, the cost of construction labor jumped by 5.18 percent, a 15.8 percent premium over the national average for labor. 

Absent Productivity Gains, The Industry Will Sink Deeper Into Crisis

One in 20 working civilian Americans already work in construction, 5 percent of the overall workforce.  Normally, increases in the unit cost of labor might be offset by an industry’s productivity gains. However, the construction industry does not seem to be getting more productive. In fact, according to some reports, productivity may even be declining in the construction industry, globally.

In a recent publication entitled The Strange and Awful Path of Productivity in the US Construction Sector, noted University of Chicago economists Austan Goolsbee and Chad Syverson discuss why they firmly believe that the construction industry has likely seen a decline in productivity over the past forty years.  As long as this condition persists, it seems unlikely that we will see any abatement in the long term trend of rising construction costs or in the myriad problems facing the construction industry as the result of its deepening talent crisis.

 

For more on this research - and to discuss solutions with other industry leaders - join Chad Syverson and BuiltWorlds at our Annual CEO Forum Meeting April 16-17  in Chicago.