American construction workers have vanished

Laborers have taken jobs in other sectors, and construction wages remain low

TRD New York /
Jul.July 14, 2014 06:20 PM

Homebuilders have had a difficult time finding labor.

This might sound odd considering that 1.5 million construction workers lost their jobs during the recession and only about 80,000 construction jobs have been added back since the recovery began, says Bank of America’s Michelle Meyer. To get a better sense of the health of the construction labor market, Meyer plots a Beveridge Curve, which looks at the relationship between the unemployment rate and job openings rate, for construction workers.

As you can see by the progression of the dotted red line, the unemployment rate for construction workers has been falling even as job openings have trended higher.

The chart suggests a “less efficient labor market and hence a skill mismatch,” and it also shows tightness in the labor market. From Meyer:

“The two should be negatively correlated — an increase in job openings means a tighter labor market and, therefore, a lower unemployment rate. The slope is important, but so is the placement of the curve. When the curve shifts out, it suggests a less efficient labor market and, hence, skill mismatch. We construct the curve using data from the JOLTS survey back to 2001, marking the different business cycles by color. The data are clearly noisy, but it shows that the curve has shifted in this expansion. As of May, the rate of job openings has jumped to 2.1% while the unemployment rate among construction workers was at 8.6%. The market for construction workers has tightened.”

So, if there were so many jobs lost, and so few gained back, why aren’t there more construction workers out job hunting?

The reasons are varied. Many of these unemployed construction workers went to other sectors like manufacturing. Many found themselves moving to the oil and gas states where the energy industry has been booming. At least some have just left the labor force.

Meyer argues that many others became self-employed working as renovators or in land scaling.

“These are two sectors which are often part of the “underground” economy (cash payments), and therefore not captured in the official statistics,” she writes.

Another major problem keeping workers away from construction is the lack of attractive wages in homebuilding. Average hourly earnings are still growing very slowly compared to historical levels. They are up 2.2% year-over-year, up from 0.1% YoY in early 2012, but much lower than 2006 peak of 5% growth. Really wage growth has been under 1%.

“Builders are still seemingly worried about profit margins, sacrificing volume for pricing and resisting more expensive labor. We don’t think this is a sustainable model,” writes Meyer.

So it really isn’t much of a mystery. After the housing bubble burst, unemployed construction workers just moved on to better things.


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