An economic riddle: Where are all the construction workers?

The housing bust and Great Recession might have scared a generation of would-be construction workers away from the building trades.

That’s the strong suggestion of some new research by the Federal Reserve, which explored why shortages of construction workers are emerging even as large numbers of people who seem good candidates for that type of work remain under-employed.

A working paper by Fed economist Andrew Paciorek notes that construction employment growth has badly lagged the recovery in the labor market as a whole.

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Source: Monthly Current Population Survey/Federal Reserve

Source: Monthly Current Population Survey/Federal Reserve

And this is not largely explainable by weak building activity or slack demand for labor. While wages for construction workers have not been growing much more briskly than economy-wide average, employed construction workers by the end of 2014 were working “the most hours per week on record.”

Supporting the idea that labor is tight here, a greater percentage of homebuilders reported worker shortages late last year than during the peak of the housing boom in 2004 and 2005. Builders were having the hardest time finding help for framing crews and rough carpentry – semi-skilled jobs that don’t require much formal training.

So what’s going on?

Paciorek ran statistical tests to rule out the idea that huge numbers of former construction workers are either still unemployed or have flowed out of the labor force altogether.

While the construction sector disgorged 2.5 million of its 11.5 million workers from 2006 to the depths of the recession in 2009, unemployment and departures from the labor force among construction workers has returned to their normal historical range.

This leads Paciorek to theorize, “The long duration of the housing slump means that many people who might have become construction workers never joined the sector in the first place.”

Specifically, younger people who would typically get into construction never did. Paciorek sifted the labor data to create a profile of workers who over time have gone into construction in large numbers. This pool of likely construction workers is basically made up of younger men without college degrees, with a tilt toward Hispanics.

In the five years after the housing market peak, there were two million fewer people from this group working in construction. Some have ended up going to school, though this doesn’t seem to account for much of the gap. Others, discouraged by the seeming unreliability of the building industry, looked for other kinds of work, as this look at labor shortages in the hard-hit but rebounding Las Vegas market details.

And many of these would-be construction workers simply never entered the labor force at all.

As Paciorek writes, “It seems there are many underemployed workers who appear to be relatively good candidates for construction employment, at least on the basis of these basic characteristics. In particular, there may be a large pool of people who would find construction work attractive but did not enter the industry during the bust years.”

A graying workforce

One interesting result of the dearth of newcomers seeking work in the sector is the dramatic graying of the construction workforce.

Breaking down the industry head count by age shows a steep drop in the proportion of those age 16-29, and an outright increase in the number of workers older than 50 since 2006. This has lifted the average age of an American construction worker by two-and-a-half years since 2006, nearly twice the rise in the age of the total employed population.

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Construction employment by age (Federal Reserve)

Construction employment by age (Federal Reserve)

This is all pretty good news for any kids who figure that wielding a nail gun in the sunshine is a more attractive way to spend their days than idling on Mom’s couch. Not only does construction work pay better than other jobs that don’t require college, but the aging of the industry labor pool means opportunities should be ample to find work there in coming years.

While housing starts are running way below the bubble peak levels, they are up nicely from their lows, nonresidential construction is expanding strongly and the stock market is bidding up homebuilder shares in anticipation of further brisk demand for new houses.

“The open question,” Paciorek concludes, “is how difficult it will be to draw these people into the sector if demand for new homes picks up.”

 

By

Yahoo Finance

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