This content was first published on BuildZoom.com on July 18, 2017.

• Despite the housing market recovery and the current affordability crisis, the construction industry workforce continues to shrink.

• The industry’s contraction is related to its aging: like other industries, it is aging as Baby Boomers progress through the lifecycle but, in contrast, it shed much of its younger workforce during the Great Recession and has failed to rebuild those ranks.

• While an infusion of new labor seems unlikely, automation is emerging as a possibility.

The U.S. is currently in the midst of a housing affordability crisis but, despite soaring home prices, the construction industry is churning out far fewer homes than it has historically. Homebuilders point to a shortage of lots and labor as the primary reasons. Having considered the role of land and location in a previous post, this post addresses the shortage of construction labor.

The pool of construction workers is shrinking

The construction industry grew larger during the housing market boom of the early and mid-2000s, but the subsequent housing market crash hurt the industry badly. From 2000 to 2005 the industry’s labor force – the sum of employed and unemployed workers – grew from about 9.3 million to 11.5 million. However, by 2010 it had fallen to 10.6 million and construction workers’ unemployment rate had more than doubled, from 8.2 in 2005 to 18 percent in 2010.[1]

Since 2010, the slow rise in home construction has drawn unemployed labor back to work, but the industry’s labor force has continued to shrink. By 2015 employment had risen to 9.7 million and unemployment was down to 7.1 percent but, despite this, the size of the labor force did not grow and even fell slightly, from 10.6 million in 2010 to 10.4 million in 2015.[2]

There is no simple way of knowing how many workers are potentially available to work in construction, but a rough proxy – the combined number of construction workers inside and outside the labor force – still points to the construction labor pool contracting. The data allow one to observe workers below retirement age (taken here to be 65) who associate themselves with the construction industry, and who have been out of the labor force for up to 5 years, suggesting their skills are still current. As the chart shows, the pool of workers from which the industry can draw has become smaller even when such workers are included (of course, the chart is mum regarding former construction workers now employed in other industries).

One might be tempted to place construction employment side by side with new home construction and make inferences about construction labor productivity – a larger industry in 2015 produced substantially fewer homes than a smaller one did in 2000 – but this would be mistaken. The reason is that construction workers do not only build homes. They also build infrastructure and non-residential buildings, and they also perform maintenance and renovation. Commercial construction has seen a boom recently, which has certainly drawn labor, and maintenance and renovation are likely to be more labor-intensive than new construction.

The construction industry has aged with the Baby Boomers but, unlike other industries, it has shed many of its younger workers

As the demographic bulge that is the Baby Boom generation has progressed through the life cycle, the American work force has aged, and the construction industry has aged even faster. From 2000 to 2015, the average age of workers in the economy rose from 39.6 to 41.8, whereas the average age of construction started off lower, at 38.9, but rose even higher, to 42.2. However, as the chart suggests, there is more nuance to the story.

From 2000 to 2005, the construction industry was booming and attracted much new labor, especially young workers, counteracting the broader aging trend. Indeed, the average construction worker in 2000 was about 7.5 months younger than his average whole-economy peer, but by 2005 the gap had grown to almost 18 months.

The following pair of charts shows the distribution of workers across age groups in 2000 and 2015. The visual expression of Baby-Boomers’ progression through the life cycle is the reduction in the share of workers aged 35 to 55 and the growth in the share of workers aged 55 and higher.

The single most noteworthy change took place in the youngest age group. In 2000, workers below age 25 comprised only a slightly smaller share of construction workers than of all workers, but by 2015 they accounted for a much smaller share of construction workers.

Another way of expressing this change is to say that the youngest age group was under-represented among construction workers in 2000, and became more so by 2015. The next chart reports the under- and over-representation of each age group among construction workers in 2000 and in 2015.

The chart shows that the representation among construction workers of younger workers up to age 34 has decreased. The under-representation of the below 25 age group has become more acute than it was in 2000, whereas the 25-34 age group has gone from slight over-representation down to equal representation. In contrast, although 55-64 year-olds remain slightly under-represented in construction, the broad group of 35 to 64 year-old workers’ has increasing representation among construction workers (workers over 55 are almost surely under-represented in construction because of the strenuous physical nature of many construction jobs). This is the mirror image of the decreasing representation of younger works – as one group’s share falls, the other’s must rise.

Thus, the contraction of the construction industry and its accelerated aging since 2005 appear to be driven by two trends. First is the Baby-Boomers’ progression through the lifecycle, which is not unique to the construction industry. Second – and distinct from other industries – the reduction in the industry’s employment of younger workers. The decreasing representation of younger workers in the industry indicates a failure to maintain sufficiently-sized replacement cohorts. The data only allow one to speculate why the industry has failed to rebuild its ranks of young workers since the housing crash, but survey evidence from Indeed suggests that younger workers shun the construction industry.

Real wages in the construction industry have not risen much

Even though one might expect a labor shortage to trigger wage increases as employers compete for workers, wages in the industry have not increased much since 2005, and have fallen relative to 2000. Stated in inflation-adjusted 2015 dollars, the average annual wage in the industry was $49,500 in 2000, decreased to $47,705 in 2005 and to $46,904 in 2010, and then increased to $48,320 in 2015, surpassing the 2005 level by only 1.3 percent.3 Nonetheless, the 2005-2015 change in construction workers’ real wages was higher than it was for all employed workers at just 0.8 percent.

Looking to the future

The trends portrayed do not bode well for the industry’s capacity to produce housing, or for housing affordability.

One way of upping the industry’s capacity is to infuse it with labor once again, either by recruiting and training Americans or by importing construction labor from abroad. The fact that the former has yet to happen on a meaningful scale suggests it isn’t going to, whereas the latter doesn’t seem viable in the current political climate.

Another way of raising the industry’s capacity is through technological innovation. Automating construction is especially challenging because structures must be tailored to sites and tastes in ways that do not lend themselves to mass production. The ability to customize and transition quickly between short production runs is key. Recent technological progress in design, manufacturing, and logistics is already inspiring new companies to introduce more efficient ways of building. If they succeed, the construction industry could ultimately go the way of agriculture and manufacturing (and retail), with the associated mix of societal gain and upheaval. Consumers will reap the benefits of an industry that is more productive despite employing fewer workers, but many of those workers will be aptly-skilled newcomers who supplant veteran workers that struggle to adapt.

The U.S. housing market’s present crisis of affordability may enjoy a temporary reprieve if and when a market correction occurs but, in the long-run, it will not show signs of improvement unless the construction industry can boost its capacity back to historical levels and beyond. Unfortunately, raising the industry’s capacity alone is a necessary but insufficient step towards resolving the affordability crisis. For that, cities must also address the land use issues that underly the shortage of lots, and find palatable ways of accommodating growth.

Notes:

1. With the exception of inflation adjustment, all of the data used in this blog post are from the U.S. Census’ 2000, 2005, 2010 and 2015 American Community Survey (ACS), obtained via IPUMS: Steven Ruggles, Katie Genadek, Ronald Goeken, Josiah Grover, and Matthew Sobek. Integrated Public Use Microdata Series: Version 6.0 [dataset]. Minneapolis: University of Minnesota, 2015.

2. The construction industry is said to be a large employer of unauthorized immigrant workers. One might be concerned that the numbers do not reflect such workers if they avoid responding to Census surveys, but such workers are generally reflected in the data used here. In fact, the Pew Research Center uses the same data to estimate the overall population of unauthorized immigrants.

3. The average wages of the employed were adjusted for inflation using the average annual CPI for all urban consumers and all items – U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis, July 5, 2017.