Solving the Labor Gap in the US Construction Industry
Construction projects in the United States are currently understaffed, and the situation is expected to worsen. Here are some steps the industry can take to close the gap.
The construction industry in the United States appears to be booming. According to projections, the US Bipartisan Infrastructure Law will invest $550 billion in new infrastructure over the next decade, potentially creating 3.2 million new jobs across the non-residential construction value chain. That's a 30% rise across the whole non-residential construction workforce, requiring 300,000 to 600,000 new workers every year.
This is a tall order for an industry that already struggles to find qualified employees. At the end of October 2021, 402,000 construction positions remained vacant, the second-highest number since data collection began in December 2000.
In this climate, salaries have risen dramatically since the start of the COVID-19 epidemic, suggesting fierce competition for workers, with firms offering better pay or other fringe benefits. Construction earnings increased by 7.9% between December 2019 and December 2021. Competition from other industries for the same pool of workers is also heating up. Transportation and warehousing earnings, for example, increased by 12.6 % over the same time frame. Experienced workers are already being lured away from construction and into these and other areas by the chance of higher pay and improved working conditions.
There is no End in Sight
Because of structural changes in the labor market, today's mismatches are likely to endure. The link between job opportunities and unemployment has shifted away from previous patterns. The US unemployment rate was 4.0 % in January 2022, two years after the pandemic began, close to its pre-pandemic level of 3.5%. However, job opportunities remained extremely high, with 10.9 million open vacancies as of December 2021, compared to 5.9 million in December 2019.
This labor supply gap has several primary reasons, some of which are cyclical in design and others which are structural. For example, the epidemic has accelerated the retirement of many baby boomers, with an estimated 3.2 million exiting the workforce in 2020—more than a million more than in any year prior to 2016. According to the American Opportunity Survey, physical and mental health concerns, as well as a lack of childcare, are the most common barriers to re - entering the labor market. The relevance of nonwage components of the employee value proposition is also highlighted in research on the "Great Attrition/Great Attraction." Employees' rising emphasis on feeling appreciated by their organization, supportive management, and flexibility and autonomy at work is reflected in record job listings and quit rates.
Furthermore, the supply of fresh construction employees is not as plentiful as it once was. After being suspended in the spring of 2020 due to pandemic-related safety concerns, training programs have been hesitant to resume operations. The overseas labor, which has been a key source of talent for engineering, design, and contracting activities, is becoming more difficult to attract. Since 2016, net migration has decreased, a trend amplified by COVID-19 travel restrictions. Net migration fell steadily from 1.06 million to 244,000 between 2016 and 2021.
The Impact on Projects
Because of the interrelated nature of the construction value chain, a labor mismatch has ramifications throughout the project life cycle and supply chain. By the end of 2021, project managers were reporting that up to 25% of material deliveries to job sites were late or incomplete. The combination of higher hourly rates, premiums and incentives, and overtime payments resulted in overall labor expenses that were up to double pre-pandemic levels during project execution. Meanwhile, several owners reported project delays due to concerns with the quality and productivity of on-site work due to a lack of competent and experienced workers.
Pay growth in several US towns and suburbs has outpaced that experienced in core Gulf Coast counties during the peak of the shale oil boom. Labor shortages in the shale industry drove up wages by 5 to 10% and were linked to sharp productivity losses. During peak shale building, some tasks' productivity dropped by 40% or more (exhibit), and overall output dropped by roughly 40% each year when labor was scarce. Owners were forced to lengthen project deadlines by 20 to 25% as a result of this. Given that oil businesses were able to attract new workers from all over the country, the consequences of a long-term, nationwide labor mismatch could be considerably more severe than the shale industry's experience.
Restoring the Balance
The labor shortage in the construction industry is severe today and is expected to worsen. Companies in the industry should take thoughtful action now to avoid a decade or more of rising costs, falling productivity, and ever-increasing project delays.
These actions could address three aspects of the problem. First, businesses could do everything possible to maximize productivity by implementing measures aimed at improving efficiency throughout the value chain. Second, they could increase the pool of available labor by focusing more on attracting diverse talent and working harder to retain current employees. Finally, they could consider making labor a strategic priority, with senior management involvement.
Improving Productivity
Companies could use a variety of levers to reduce the amount of labor required per job and drive up productivity in project development and delivery. Changes to project designs and new thinking about when, where, and how work is done are among the levers.
Productivity gains occur long before work begins on the ground. They include strict project scope control, design simplification, and standardization. Increased use of off-site and modular construction, for example, could enable projects to reap multiple benefits, such as accelerated design cycles; increased productivity associated with industrialized, factory floor manufacturing techniques; automation; and less time spent on site.
Smarter execution management, enabled by digital technologies and analytics techniques, could result in better, faster decision making during project execution. For example, real-time data collection provides project managers with earlier, more detailed insights about progress, allowing them to intervene more effectively to maintain productivity and keep projects on track. Intelligent simulation software enables teams to assess hundreds of thousands of potential critical paths, identifying approaches that may be more efficient or less risky than conventional wisdom.
Lean construction is another proven method for achieving significant and long-term productivity gains. Through integrated planning, performance management, and waste elimination, establishing a centralized, continuous improvement engine could improve on-site execution. Key project stakeholders collaborate using a set of agreed-upon key performance indicators. This enables them to address issues in real time and fosters collaboration in order to reduce waste and variability in work. Capability development across the planning and construction teams could assist team members in understanding and implementing lean construction practices.
Rethinking Talent
Construction companies can accelerate recruit onboarding, boost retention by revisiting what employees want beyond wages, and invest more in developing their pipelines of future workers to ensure access to the skills they require.
In the short term, employers could review the job application process and reduce the number of steps in both the interview and onboarding procedures. In the medium term, both the public and private sectors may seek to shorten hiring timelines and shift to a skills-based hiring approach.
In the longer term, both retaining current employees and attracting fresh talent will be dependent on an understanding of what individuals value outside of wages. Competitive pay is now standard; therefore, employees are considering a larger range of benefits and workplace qualities when deciding where to work. According to research on attrition in the post-pandemic workplace, employees value autonomy, flexibility, assistance, and upward mobility.
Companies should also broaden their search for possible hires by considering people with different educational backgrounds, such as technical degrees or hands-on experience. The value of skills-based, rather than credential-based, employment is demonstrated by the Rework America Alliance, a Markle initiative in partnership with McKinsey. A skills-based approach is essential for tapping into the talents of the 106 million workers who have gained experience but whose abilities are often overlooked because they lack a four-year college diploma. Rethinking apprenticeships to bring younger students and vocational talent into the sector at an earlier stage in their careers could complement a skills-based strategy.
Employers should consider collaborating with a variety of unorthodox talent sources, such as veteran transition programs, formerly convicted people, and others. Homeboy Industries exemplifies the local impact, effectiveness, and promise of working with underserved population groups. Furthermore, recognizing and attracting talent from outside the construction sector's traditional channels could help the business diversify its workforce. Currently, 88% of labor in the sector is white, and 89% is male.
Taking a Strategic Approach to Labor
Across the construction value chain, labor and skills shortages have the potential to limit growth and undermine profitability. There is no other single issue that can safeguard C-suites against considerable cost erosion. A systematic talent acquisition and retention program, managed by a C-level executive and a major part of the CEO agenda, could be considered by companies. That approach may begin by compiling a comprehensive database of present and emerging labor shortages and gaps. It might then come up with a bold set of initiatives to address labor challenges throughout the value chain. This activity begins in the boardroom but does not end there. Leadership will almost certainly need to be more visible in the field and on the job site, praising and acknowledging success. Leadership will almost certainly need to be more visible in the field and on the job site, recognizing and applauding great talent across the company.
The labor issue goes far beyond corporate boundaries. Because labor shortages in a single value-chain participant may compromise the successful delivery of a project, project owners and contractors may desire to change the structure of project partnerships and contracts. Using collaborative contracts instead of standard contractual approaches, for example, allows partners to share market risks and opportunities as a project develops, rather than baking in worst-case scenarios from the commencement of negotiations.
Conclusion
The construction industry in the United States is ready to renew, replace, and expand the country's infrastructure. If done correctly, this will drive inclusive growth and position the economy for 21st-century prosperity. To do so, the industry will have to address its labor issues. To create better employment, get the most out of its people, and optimize agility and collaboration across the value chain, a broad collection of technologies and methodologies must be used.
How can we help?
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*Sources - US Bureau of Labor statistics & US Census Bureau