Where did all the construction workers go?

Where did all the construction workers go?

The shortage of labor appears to be driven by the loss of young workers during the housing bust.

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August 3, 2018
Edited by Adam Redling

The shortage of workers entering the construction labor force is an issue that has been front and center for employers in recent years. According to an article by Issi Romem, chief economist at San Francisco-based BuildZoom, the labor shortage can be traced back to the housing bust and the subsequent depressed numbers of young professionals entering the trade post-recovery.

Romem notes that one way to measure the intensity of a labor shortage is by observing unmet demand.

Romem looked at data from Greenwich.HR, a labor market intelligence firm, regarding construction job postings that remained online in 2017 for an extended period, suggesting an inadequate supply of workers to fill the positions. By this measure, Massachusetts, New Jersey, California, Pennsylvania and Connecticut were the states that took the longest to fill openings, implying the biggest worker shortages. Conversely, Mississippi, followed by Idaho, Wyoming, Kentucky and Louisiana were the states where construction job openings were filled the quickest, suggesting a greater pool of prospective employees to choose from.

The states with the greatest demand for construction workers seem to corelate with states where the cost of living and the value of real estate are the highest. On a chart comparing median home values with number of days job postings remained online throughout the country in 2017, Romem observes, “the shortage of construction labor is, in fact, greater in states whose housing is more pricey.

Romem suggests several possible reasons for this:

  • High housing prices restrict the market and make the construction labor pool tighter by reducing needed supply and increasing demand.
  • Inversely, tighter labor pools push prices higher by raising the duration and cost of construction, further exacerbating the labor problem.
  • Competition for buyers in vibrant economies results in high home prices, high wages and a greater difficulty filling jobs.

According to Romem, the longstanding correlation between home values and construction labor supply in the U.S. is likely to continue.

“The greater relative shortage of construction labor in expensive states is likely to be a longstanding feature of the U.S. economy,” Romem writes. “Although housing price differences across states change somewhat from year to year, broad differences such as the fact that the coasts are pricier than the South and the Midwest are slow to change. California’s housing prices, for example, have been diverging from the rest of the nation’s since the 1970s. Given the ties outlined above, the relationship between the high cost of housing and the relative shortage of construction labor is likely to persist.”

While the employment rate for construction professionals has rebounded from the housing bust (the employment rate went from 80.3 percent in 2005 to 69.4 percent in 2010 , back up to 80.5 percent in 2016), the construction workforce has been notably diminished since the recession. The construction workforce went from a high of 11.7 million in 2005 to 10.8 million in 2010, which dwindled to 10.2 million in 2016. Individual states reflect this pattern, with employment rate hovering near pre-recession levels in many areas while the overall number of workers has diminished.

“Despite a 9.4 percent increase in the U.S. population from 2005 to 2016, as many as 41 states saw their construction workforce decline, 34 states lost more than 10 percent of their construction workforce and 15 states lost more than 20 percent,” Romem states.  

Romem notes that states where home values were hit the hardest during the recession are the most prone to construction labor falloff.  These states also lost a disproportionate number of young workers.

And despite home values rebounding in many areas of the country, young workers haven’t come back to the industry. It’s this loss of the worker demographic that Romem points to as a primary driver of the overall worker shortage.

“The current shortage of construction labor appears to be driven by the loss of young workers during the housing bust—a scar from which the construction industry has yet to recover. … The reduction in home values during the bust years did a great deal of damage to the construction industry’s numbers, their recovery since then has done very little to undo the prior damage,” Romen states.

Romem attributes the loss of young workers to several factors.

“Why aren’t young workers flocking back to the construction industry? There is no obvious answer, but one possibility is that the formal training required in the construction trades is harder to come by today than it was before the housing bust,” Romem writes. “This could be because of the loss of institutions such as high school vocational training programs and technical colleges during the bust. The evidence of such institutions shutting down during the bust is anecdotal, but it would be no surprise if it turned out that such institutions closed down more often in states that were harder hit. 

“Another possibility is that young workers often enter construction following the footsteps of slightly older relatives and friends. The decline in construction labor during the housing bust, especially among the younger ranks, left fewer young construction workers to reel in the next generation (economists would call this a ‘propagation mechanism’ for the initial labor supply shock that the housing bust delivered).”

Romem notes that the introduction of new technological advancements to the industry or a sudden influx of foreign skilled labor could help mitigate the construction labor shortage, but these fixes are speculative and show no signs of being imminent. It is more likely that if the construction labor pool is to be restored to pre-recession levels, it will have to be fixed from within.

“The housing bust has left a permanent scar on the ranks of an entire generation of young construction workers,” Romem states. “Because the process of becoming highly skilled construction workers takes a great deal of time, rebuilding the construction workforce will take time as well. But, unfortunately, the process of rebuilding doesn’t show up in the data yet.”