Craft shortages continue to be a boon for experienced workers who are commanding top pay for their high-demand skills. On the other hand, rising wages in a shortage environment tend to benefit unskilled workers also, and employers are too often paying premium wages for insufficient training and lower productivity. Why? Because bodies are needed and employers must compete for every craft worker.
The Engineering News-Record article titled Craft Pay Ramps Up As Worker Gaps Grow (October 2015), points out that as construction spending increases toward pre-recession peaks, worker pay is following suit, and some employers are seeing the largest pay escalation in decades. In fact, the Construction Labor Market Analyzer (CLMA) projects wage and per diem escalation of 2-4% over the next few years with the most highly skilled crafts expected to grow at the greatest rates. This is exacerbated in the Gulf Coast region where industrial demand continues frenetically.
It’s not surprising when examining the marketplace from a macroeconomic perspective. During the peak year (2006) of the pre-recession construction boom, construction unemployment was 6.7%. Until this year, that was the second lowest construction unemployment in 40 years and is essentially full employment since it is below what most economists consider “zero” or “natural” unemployment – when the only workers left to hire are those who are between projects, can’t work or choose not to. Now, construction unemployment is 5.5%, yet the demand for these craft workers is nearly equal, and in some sectors arguably greater than in 2006.
Many factors are contributing to the shortage challenge, but two are highlighted here. First, the year-over-year unemployment decline is not due simply to an increase in employed workers, but also to a drop in the labor force relative to July 2014. Many workers left the construction industry for more secure positions in manufacturing, oil and gas, and other industries. Our industry is not doing a sufficient job of retaining our workforce and this is a harbinger of even greater supply/demand imbalances. For example, the CLMA data indicates a demand for over 180,000 welders, across the United States and across all non-residential construction industry sectors over the next several years, yet the known welder supply is woefully inadequate to meet that need.
Secondly, the construction workforce is aging four times faster than the rest of the workforce. Government data indicates 11.6% of the construction workforce is projected to retire within the next five years. The CLMA data, provided directly by contractors, unions and brokers, projects that 11% of industrial craft workers are likely to retire in the next 2 years; 17% in the next 5 years and 29% in the next 10 years. We have not been able to recruit and train the next generation to replace these workers. Are you prepared for attrition of this magnitude?
Something must be done. Here are three recommendations of the numerous options that can and should be taken to address this challenge.
- First, short and long-term risk mitigation strategies should be understood and implemented. The workforce challenge won’t be resolved overnight, but there are many ways to continue safely and productively on current projects. The Skilled Labor Shortage Risk Mitigation planning document produced in 2014 by the Construction Users Roundtable provides many recommendations and is available through the CLMA application.
- Second, owners need to require contractors to recruit, hire and train skilled workers. Similar to how owners prequalify on safety, they should do so on workforce development as well (perhaps by using a tool such as the Contractors Workforce Development Assessment). This levels the playing field, grows the workforce and benefits all.
- Third, contractors should train to retain. A well-trained craft worker is safer and more productive and therefore earns more, leading to job satisfaction and retention. Also, research (such as a study by the Construction Industry Institute) indicates that employers reap about $3.00 for every $1.00 invested in training. Train, and everybody wins.