What Will Be the Impact of the Construction Worker Shortage?

October 18, 2017

The construction industry has a big problem that’s costing businesses and consumers alike, adding thousands of dollars and delays to almost every project. On the surface, things should be great. Business is booming. Homebuilding and large-scale construction projects are in demand. However, the problem is – there aren’t enough people to do the work. That has everyone asking, what will be the impact of the construction worker shortage?

How We Got Here

There’s a shortage of skilled labor in construction right now, because:

  • The construction workforce is aging.
  • Not enough young people are choosing careers in construction to replace retiring workers.
  • During the Great Recession, a lot of workers left the construction industry for the energy sector – and never came back as many predicted they would.
  • Uncertainty about immigration policy and promises of stronger immigration enforcement are scaring away even legal immigrants in the industry.
  • Drug testing and an opioid epidemic may deter candidates from applying to jobs in the field.

Put it all together and you get one of the biggest construction worker shortages in the last 20 years in the middle of one of the hottest construction markets.

What Will the Impacts Be?

How is the construction industry responding to this worker shortage? Some new programs and new trends are already emerging.

Look for more women on the construction site.

One recruitment strategy unions and construction companies are using is to bring more women into the industry. This move may prove more challenging, since the construction industry culturally has a reputation of being hostile towards women workers. A study from the Labor Department cites that 9 in 10 women in the construction industry report incidents of sexual harassment, compared to 1 in 3 women overall. However, groups are making some big changes to make the industry more welcoming to women. For example, the Iron Works union has started offering up to eight months of maternity leave to pregnant women and new moms – even though only 2% of the group is women. Their hope is that family-friendly benefits will attract more women.

Another factor that’s affecting the construction industry is the opioid epidemic. Some sources point to this on-going epidemic as a contributing factor to this trend of courting women to construction jobs, since women aren’t as likely to use and overdose on drugs, according to a study from the National Institute on Drug Abuse. Continued onsite drug testing is required for a safe and drug-free work environment.

Watch for better benefits.

As companies compete to keep their workers, not only will they offer higher wages – they’re likely to offer benefits they may not have offered before, including better health care benefits, cafeteria spending plans (such as medical flex spending accounts), and retirement plans, to name a few.

Expect a focus on luxury projects.

Many real estate, construction and development companies are trying to recuperate their costs by focusing on luxury projects rather than individual residences and other smaller building projects. This trend could eventually have a wider impact, since some regions already have a shortage of affordable housing for low-wage workers (and even middle-class workers in pricey areas, such as Silicon Valley, to name just one well-known example). It could also contribute to the growing trend of people renting instead of buying (a trend the U.S. has already seen rising after the housing market collapse in 2008).

Look for new community job training partnerships.

One solution to the worker shortage – train more people to be construction workers! Unfortunately, budget cuts have led many schools to get rid of vocational programs and even basic shop classes in high schools, contributing to the lack of new workers who can take over for retiring baby boomers. Some of these vocational programs could offer students who want it a shorter path from graduation to a job and a career. There’s also a general lack of interest in construction as a career, as parents often try to influence their children to go to college and get white-collar jobs.

Some companies are starting to partner with high schools, community colleges, and job training centers to provide the training necessary for individuals to get well-paying construction jobs. The training can include high-skilled areas, such as woodworking, electrical work, and plumbing, to name a few. Non-profit organizations, such as the Home Builders Institute (“HBI”), are popping up to fill the need, too. HBI specifically focuses their educational programs on at-risk youth, ex-offenders and veterans, because construction is an industry where you can get a job without having a college degree (and subsequently, the student loans to pay for that degree).

These kinds of public-private partnerships can go a long way in introducing a new generation to this potentially lucrative career path. The average construction worker can make somewhere around $85,000-95,000 per year, according to various sources. That’s roughly $40,000-45,000 more than an average private employee.

Pay attention to politics.

Like it or not, politics are influencing the worker shortage that the construction industry is experiencing. Take the public immigration debate, for example. The Trump administration has repeatedly said they want to deport unauthorized immigrants and build a wall to keep them out. There has been talk of rolling back visa programs. The hostile tone that the public immigration debate has taken makes both legal and unauthorized immigrants nervous. One of the results is that there have been fewer immigrants (legal or not) showing up for construction jobs in the U.S.

Another thing to pay attention to is what happens with the H-2 visa programs. The H-2 visas that are currently issued for agricultural and low-skilled workers are complicated. Employers complain that they take too much time to obtain and are too costly. It’s easier and faster for companies to turn to unauthorized immigrants to fill their labor needs. On top of that, only about 5,000 visas are granted to low-skilled workers each year, which isn’t enough to keep up with demand. In a working paper released by the Federal Reserve Bank of Dallas, the authors suggested that the government would need to issue closer to 100,000 temporary visas to better meet demand, depending on market conditions. One of the authors, Pia Orrenius, suggested that by not welcoming outsiders, the U.S. could start to resemble Europe, with fewer projects getting done, prices rising, and more renters than homebuyers.

The current administration and many members of Congress have discussed revamping visa programs as part of a proposed immigration overhaul. Everyone will have to wait and see what the proposals are and whether or not Congress can work together to pass them.

What Does It All Mean?

In the short term, it’s going to take longer and cost more to get construction projects done. In the long term, real estate, construction and development businesses will have to make some big decisions that will influence their workplace culture – things like what kinds of benefits to offer and whether to actively try to attract more women to the industry. Will construction businesses get involved in politics and lobby their senators and representatives to raise the number of visas issued each year or even recommend other changes to immigration law? It’s possible, since their profits are on the line.

More importantly, professionals across these industries will be looking to see if outreach programs, such as community job training programs and school partnerships, will yield the results they need – namely, a young, skilled workforce that can help them meet the market demand for new construction and renovation.

No matter the challenges your construction or development company faces, Cherry Bekaert can provide financial and strategic advice to help you manage risk, improve financial metrics and optimize operational performance. We have the specialized knowledge and proven track record of providing tax benefits and accounting guidance to help position our real estate and construction clients for success in a complex economic climate.