Labor Shortage Likely to Intensify

BY KEN SIMONSON

CHIEF ECONOMIST, AGC OF AMERICA

Contractors who have had trouble filling open positions in 2021 may find their difficulties increasing in the new year. The situation is likely to result in more project delays and higher costs.

While nearly all industries have experienced a tightening labor market in recent months, the problem is especially acute for construction, due in part to the pandemic. At the start of the pandemic, construction employment tumbled by 1.1 million jobs in just two months from February to April 2020. That was half as many jobs as the industry lost over the five-year downturn from 2006 to 2011.

At first, employment bounced back strongly, and it continued to grow steadily in residential construction — single- and multifamily homebuilding and among residential specialty trade contractors. But employment at nonresidential construction firms — general contractors, specialty trades and heavy and civil engineering firms — virtually stalled from June 2020 until August 2021. The nonresidential sector added only 36,000 employees — less than 1% — over those 14 months, while total nonfarm payroll employment was rising by nearly 10 million, or more than 7%. In other words, many workers who had been laid off from nonresidential construction, as well as first-time job seekers, found far more opportunities on the residential side or outside of construction.

Those opportunities, particularly for historically low-wage jobs such as fast food, warehouse and delivery positions, came with much higher pay than previously. Starting wages doubled in less than a year in some cases, and signing and retention bonuses also narrowed the gap between construction and other sectors. Historically, pay for “production and nonsupervisory employees” in construction averaged 20-23% more than for the private nonfarm sector as a whole. By the fall of 2021, that pay premium had shrunk to less than 18%. The current construction pay premium may no longer be sufficient to attract individuals weighing jobs that offer flexible hours, indoor and possibly remote work and other advantages.

A further issue for contractors is the low vaccination rate and high “vaccine hesitancy” rate of construction workers. An ongoing survey of Facebook users analyzed by the construction safety and health research organization CPWR revealed that, at the end of October, only 53% of respondents who listed construction as their occupation reported being vaccinated. That was far below the 81% rate reported by other occupations. Conversely, 43% of construction respondents reported being hesitant to get vaccinated, more than double the overall rate of 17%.

As more owners require everyone on their premises to be vaccinated, it is likely to become harder for contractors to find enough workers or subcontractors who are eligible to go on a jobsite. Furthermore, hospitalizations due to COVID-19 continue to flare up in some regions, and nearly all such cases are among unvaccinated individuals. The implication is that construction firms are more likely than others to have difficulty fielding full, healthy crews.

Together, these trends suggest that many projects will take longer to complete because contractors may have trouble assembling eligible workforces and may be susceptible to workers becoming ill. Firms will either have to pay more overtime, raise their starting pay or both.