By Tom Boudreau
With the Bureau of Labor Statistics employment data released for May, many in the construction industry are asking, “How low can the unemployment rate go?” The 5.2% construction unemployment rate is a 16-year low for the month. We have not seen a rate this low in any month since it was 4.5% in 2006.
Construction Contractors Voice Concerns
A low unemployment rate is typically positive news. But seeing rates this low, coupled with six straight years of declines in the year-over-year construction unemployment rate during May, is cause for concern. Many contractors have voiced concerns over the lack of skilled labor available, but the industry hasn’t done much to alleviate their concerns.
Repeating a Pattern
Unfortunately, this is nothing new. We’ve been speaking about the skilled labor shortage for the past several years, as we did after the last economic downturn. We only have to go back to 2000 to see a very similar pattern. Following the economic downturn of the 1980’s, we witnessed a surge in construction starts and an associated lack of skilled labor. What’s more alarming is we are experiencing these shortages for nearly the same reasons we did in the 1990’s and early 2000’s.
Causes of the Shortage
After the layoffs of the 1980's and corresponding high unemployment rates that ensued, it was believed that the first wave of baby boomers would reach retirement age and leave the construction labor force. But this didn’t happen. Since boomers weren’t retiring as anticipated – due to increased healthcare costs and decreased Social Security and pension payments – the industry took a stance that it would forego some of the training programs that were historically invested in. This lack of training is one of the reasons the construction industry now has a shortage of middle-aged, skilled workers who are ready to take leadership roles at this point in their careers. Coupled with a lack of new, younger workers entering the industry – due to a perception of better opportunities elsewhere – the skilled labor shortage is magnified.
In the 1990’s the economy began to improve, and the technology industry was booming. Most industries became increasingly reliant on the usage of computers, and new workers began seeking employment in positions that utilized this new technology.
As time progressed, vocational and training schools that were once prevalent became nearly extinct, and an increasing number of laborers entering the workforce were college educated. Between 1975 and 2013, college enrollment of graduating high school seniors rose from 49.1% to 66.1%. Upon completion of school, these workers chose, and are continuing to choose, other fields to work in. As a result, the construction industry continues to fall further behind.
How’s the Construction Industry Responding?
A short-term solution that many contractors are using to retain their workforce is offering increased wages, bonuses, overtime opportunities and retention rewards. Another solution is to contract less work. Although painful to pass up a potential project, not being able to perform due to lack of skilled labor is even worse.
Establishing solid general contractor and subcontractor relationships is also imperative in overcoming the skilled labor shortage. The better a relationship between a general contractor and their subcontractor, the better the quality of work that can be expected. And the better the chance that they work together in the future.
These short-term fixes are essential, but they aren’t a long-term solution.
What’s the Long-Term Solution?
The construction industry must re-engage at the student level. By re-establishing and better educating students about vocational-technical schools and construction industry trade education, the industry may be able to attract the high school students that are still deciding what they want to do after school. The school-to-work programs that helped build the construction industry must be overhauled.
Despite the long-term trend of more graduating high school students entering college, we’ve witnessed a slight decrease in college enrollment over the last few years.
According to the Census Bureau, between 2008 and 2013 college enrollment rates dropped from 69% to 66%. These high school graduates are entering the workforce somewhere – why not the construction industry?
So what’s the blueprint for solving the skilled labor shortage? It will take education, training and changing the perception of the industry. Owners, employers and contractors must celebrate the work that the skilled laborer provides and recognize how they help to keep the economy moving forward.
There isn’t a simple solution, but the industry has the ability and the tools to solve it together. And now’s the time to do it.
About the Author
Tom Boudreau is Vice President of Specialty Construction at The Hartford. The Hartford is a premier provider of property and casualty insurance and risk management services for midsize and large construction companies, with a focus on heavy trade contractors, commercial builders and subcontractors.
Insurance coverages mentioned in this article are underwritten by The Hartford Fire Insurance Company and its property and casualty insurance company affiliates.
The Hartford® is The Hartford Financial Services Group, Inc. and its subsidiaries, including Hartford Fire Insurance Company. Its headquarters is in Hartford, CT.