Simonson Says: The Shrinking Pool of Construction Labor

There was more good news than bad in the employment report that the Labor Department issued on May 2. The construction industry added 32,000 workers in April, bringing seasonally adjusted employment to an even 6.0 million—the highest total since June 2009. Employment increased by 189,000 or 3.3 percent over the past 12 months—double the growth rate of all nonfarm employment. Aggregate hours worked by new and existing employees rose even faster, by 3.8 percent, indicating that the industry is expanding workers’ hours as well as hiring new employees. The volume of work is growing. Construction spending in March was 8.4 percent higher, at a seasonally adjusted annual rate, than one year before, the Census Bureau reported on May 1. That compares favorably with a 5 percent increase for all of 2013. While some of this pickup probably reflects higher prices charged by contractors, much of the rise stems from more private nonresidential projects, apartments and houses. The biggest upturn was in private nonresidential projects. Spending put in place rose 8.3 percent from the first quarter of 2013 to the first quarter of 2014, compared with a decrease of 0.4 percent in all of 2013. Spending on most types of structures accelerated from the 2013 pace, except for health care. In contrast, public construction spending shrank at a 2.7 percent annual rate in 2013 and a further 2.0 percent in the first three months of 2014. And residential construction continued to go up rapidly, but not as fast as in 2013. Private multifamily construction rose 33 percent from first quarter to first quarter, versus 45 percent in 2013. Single-family homebuilding also slowed a bit, from a 28% year-over-year growth rate in 2013 to 13 percent in the first quarter of 2014. Therefore, it appears likely the industry will want more workers during 2014 to complete ongoing projects and start new ones. But finding workers may be increasing difficult, for two reasons. First, the pool of unemployed experienced workers has shrunk dramatically. From April 2010 to April 2013, the number of people who answered the monthly survey on labor force status by saying, “I’m unemployed, looking for work and last worked in construction,” plunged by 1.1 million to the lowest April level since 2006. (Industry unemployment data are not seasonally adjusted, which means comparisons are valid from year to year for a given month but not across months.) But the construction industry has added only 450,000 employees in that time. In the past, contractors have been able to attract self-employed workers into becoming employees. But the number of independent contractors, as measured by construction businesses without employees, has been dropping as well. The Census Bureau reported in late April that in 2012 there were 2.35 million construction businesses without employees, 90 percent of them sole proprietorships. (The remainder were partnerships and corporations—probably mostly holding companies.) That was the lowest total since 2004, down 12 percent from a high of 2.66 million in 2007. Thus, there are fewer self-employed construction workers and fewer unemployed workers to draw from. Instead, the industry will have to attract workers out of retirement, other sectors, outside the country, or train new workers. But other sectors generally had later and milder employment downturns than construction and started adding employees sooner, meaning it may be hard for contractors to convince workers to come back to construction. Immigration is more difficult than it was before the recession and less appealing for workers from countries with economies that are now doing better than formerly, relative to the United States. And finding new workers is not easy in an economy in which so many young adults are either not trying to enter the workforce or have inadequate education, criminal records or cannot pass drug tests. The next few months are likely to bring more good news about construction spending and employment totals. But there will also be an increasing number of contractors reporting difficulty finding the workers they need.