It's become common knowledge that today's construction industry is falling short in attracting and retaining a workforce that matches the complexity and demand of the current economic environment. There appears to be a distinct lack of human capital in the construction industry as a whole, spanning from field labor all the way up to management.
The immediate effects of this shortage are already visible in troubled projects, troubled businesses, and rising insurance claims. We will soon see this affect the upfront cost of construction and schedule, as contractors attempt to hedge the additional risk they are assuming by committing to project delivery in an uncertain labor environment. The longer-term effects could even threaten the viability of our industry for future generations, and by extension, our lifestyle, (e.g., a depressed construction industry means limited new structures in which to live, work, and play, and current structures falling into disrepair). It's no zombie apocalypse, but a slow decline could eventually weaken one of our most iconic American business models.
What are the factors that contributed to this situation? How can we address these issues and keep our industry thriving? Let's take a look at the current status of our human capital and consider some viable solutions to reboot the construction industry for a better tomorrow.
How We Got Here: Low Supply and High Demand
The current workforce shortage is a veritable perfect storm of low supply due to downsizing from the recession, experienced workers aging-out, and lack of interest from the upcoming generations, as well as the high demand of the current construction boom that spans various market sectors simultaneously.
The Recession Exodus
During the recent economic downturn, many construction projects were suspended, postponed, or abandoned altogether, and rampant layoffs ensued. These workers had to find new jobs/professions to make a living, and so many left construction and simply haven't come back. This applies to field labor and management alike.
Now that the market is picking back up, these workers are already established in new jobs and are not likely to uproot their careers again to reengage in the construction workforce. Additionally, even if we could rehire that workforce, they are now 10 years older, which presents physical challenges for field labor and relevancy/competency issues on the management side.
Aging Up and Out
According to the US Bureau of Labor Statistics, the median age of construction workers has been steadily trending upward, from 36 in 1985, to 37.9 in 2000, to 40.4 in 2010, and today in 2019, it's 42.6. That's older than the average age of the overall workforce and more worrisome because their work is much more physical than a desk job. These masters of their art are approaching retirement age, and after toiling in the field, gaining the experience that only decades of work can grant, they are trading their hammers for a well-deserved set of golf clubs and riding off into the sunset, taking their expertise with them.
Well, some are. Others love this industry so much (hint of sarcasm) that they are staying well into their later years, and maybe longer than they should, given the physical demands of manual labor. We know that as humans age, the body is naturally more susceptible to injury, especially for those who perform physical work on a daily basis. Not only that, but the senses begin to dull, and in the fast-paced environment of a construction site, having anything less than razor-sharp awareness could result in a work-related accident. Our risk engineers have witnessed this in the field, and our claims professionals have seen the resulting workers compensation claims. The aging workforce is a double-edged sword—loss of workers and expertise if they retire or an additional risk if they stay.
The concerns around aging-out are not limited to field labor. Contractors and subcontractors are experiencing similar struggles with their management teams as well. AXA XL claims data suggest that subcontractors who have been in business more than 20 years are defaulting nearly twice as frequently as those in business less than 10 years. Many of these defaults occur when an older generation of owners approach retirement age and begin to transition the business to the next generation (possibly within the family). Somewhere along the line, personal or professional interests differ, some "creative accounting" is discovered, the organizational structure deteriorates, or the operational teams aren't able to adapt to the change, and the company goes out of business.
Additionally, general contractors are struggling for field management personnel, as most college programs for construction management teach to the project management track rather than the superintendent track. And, with fewer young professionals interested in field labor, the pipeline for superintendents isn't coming up from the foremen in the field anymore. One top contractor recently told me, "The hardest positions to fill are senior superintendents. We just can't replace that value when they retire."
The Talent Pipeline
To say there's a lack of interest in the craft trades by millennials and Generation Z is putting it mildly. Considered the most-educated generations to date in the United States, many have been raised by hard-working baby boomers and early Generation X-ers whose life goal was to work hard enough to provide their children with the opportunities they never had. Education was prioritized over all else, and many have adopted their parents' aspirations by seeking the highest education, from the best institutions, so they, "don't have to work construction for a living." I've actually heard those words uttered in real life, although not from my own parents. It's an admirable notion to want the best for your children, but the underlying implication is that craft labor is a less prestigious or desirable career than working behind a desk.
Furthermore, it's not just riding bikes and playing in the dirt that kids are missing out on due to the rise of technology. Anyone who has children will attest, if they are bored, they will find something to play with, which can lead to discovering a natural mechanical inclination, an affinity for carpentry, or another craft trade … ultimately generating interest in potential career paths. Unfettered access to technology provides an endless source of entertainment, which removes these idle moments, and with it goes their creativity and sense of exploration for the tactile physical environment. The trouble with technology is that kids are never bored anymore.
On a positive note, some tech companies have recognized this as an opportunity. Build Your Future is partnered with the Associated General Contractors of America and many top contractors in pursuit of recruitment, training, placement, and retention of the next generation of craft professionals. Simcoach Games recently partnered with the Local 66 Operating Engineers to develop video games that simulate heavy equipment operator's jobs and even connects them with training, apprenticeships, and employment opportunities. Now that's creative!
Lastly, there's our competition … and this one is a doozy. These days, the construction industry competes for top talent not just with the other construction companies down the street, or even just with other professions. We are competing with a whole different business model in an age where a teenager can sit at home in their sweatpants and blog about their cat and rake in a cool $200,000 per year, #morelikesthankyliejenner. This is a whole new opponent.
The Construction Boom … Mo' Money, Mo' Projects
Historically, the construction industry is a cyclical business by market sector, shifting with the natural ebb and flow of the available funding sources and needs of our society. Everyone remembers the residential boom in the 1990s and the mega-project boom in the early 2000s. As the current economy rebounds, the demand for construction is spanning multiple market sectors at once, placing an unprecedented burden on the workforce.
- Multifamily residential. Urban living is cool again, especially for the younger generations who would prefer to live a minimalist lifestyle and spend their money on experiences rather than material items, effectively reenergizing the apartment and condo market. At the same time, the older generations are downsizing their lifestyles and trading their single-family homes for community living facilities.
- Senior living/assisted living. The great news is that medical advances are extending the human life expectancy, which drives the need for more senior living communities and assisted living facilities.
- Health care. Advanced medical care and greater longevity translate to a greater need for facilities in which to treat and care for patients. Many hospitals, clinics, and facilities are in desperate need of renovation, expansion, and/or new buildings.
- Technology. Don't look now, but we're experiencing a mini-tech boom driven by tech giants' expansion of territory and domain, such as Apple, Google, Tesla, Amazon, etc. They have plenty of money and are building world-class facilities literally everywhere.
- Historic renovations. Historic preservation, revitalization, and restoration projects are typically extremely expensive and carry a higher risk than a ground-up project. However, with a robust economy in conjunction with reurbanization of many cities, restoration projects are gaining in popularity with owners and contractors alike, both for the challenge and the reputational opportunity on these high-profile "glamour" projects.
- Leisure and entertainment. Like historical renovation projects, stadiums and arenas constitute similar discretionary spending that trends when funds are plentiful. There are currently more than 40 brand new stadiums/arenas in progress across the United States set to open in the next 3 years.
- Commercial office space. An increase in corporate mergers and acquisitions driven by the economic upturn are resulting in the impetus for renovations of high-valued spaces in cities all over the world.
- Airports. In an effort to modernize aging and outdated facilities, more than 50 US airports could collectively account for up to $70 billion in construction projects over the next 3 years.
- Rebuilding after weather events. In recent years, we've seen unmatched destruction of property from natural disasters such as hurricanes, earthquakes, mudslides, wildfires, and tornados. The damage to our buildings and infrastructure is unpredictable, emergent, and usually devastating—driving the need for reconstruction, new construction, and resiliency retrofitting for preventative measures.
- Infrastructure. Aging and ailing bridges, tunnels, roads, and water resources projects are also taking emergent precedence due to life safety.
All of these demands are pulling on the construction industry. While the capital is available, the physical hands required to perform the work is finite. Labor shortage issues that historically were able to be solved by "throwing money at it" are now much more complex.
Adding It All Up
What is the immediate effect of too few qualified workers to cover our construction projects? It is additional risk, most specifically in safety and quality. The risks range from unskilled workers performing skilled tasks, new workers not trained in safety procedures, aging workers getting injured on the job, schedule slippage due to unrealistic expectations of available labor, and errors/accidents due to lack of adequate supervisory oversight. Recently at AXA XL, we encountered two workers compensation claims that both stemmed from a well-meaning superintendent lending a hand to a short-staffed field team to help complete a task that ultimately ended up with life-altering injuries. It's easy to understand their desire to pitch in when labor is tight, but this gesture created a double hazard: there's an unskilled worker performing skilled work AND, because it's the superintendent doing the work, there's no superintendent to supervise it!
When labor is short, contractors get creative in order to meet their project delivery commitments. Contractors and/or subcontractors may "broker" labor or, worse, pick up a team of laborers hanging around the local Home Depot and drop them on a sophisticated job site. The problem is there is no guarantee the workmanship will meet quality expectations or that their safety habits will meet your standards. Where you have quality issues, you have construction defect claims and subcontractor default claims sure to follow. Where you have safety issues, you have injuries and workers compensation claims. This sends a red flag to the Occupational Safety and Health Administration, whose citations slow the job, resulting in delay claims or fast-track work to compensate, adding even more risk. It's a snowball effect.
Not to get political, but there's one additional factor that contributes to the lack of available manpower on job sites, and that is the current politics surrounding immigration laws and border control affecting contractors' ability to recruit migrant workers. Restrictions on immigration are having a substantial impact on the availability of laborers.
Rebuild a Strong, Sustainable Construction Workforce
Construction is a resilient industry that has overcome many challenges throughout the years and will surely overcome the current workforce shortage. The question is, what do we want it to look like when it bounces back? Let's reimagine construction as the attractive, challenging, unique, and rewarding business that we know it to be. Building a strong, sustainable pipeline of quality construction professionals that can meet the diverse and imminent needs of the industry is of great importance and will pay dividends to the industry and the marketplace at large.
So, where do we start? Following are some areas and ideas where we can improve.
Partnership
Diligence in vetting and cultivating strong relationships with trade contractors will pay dividends on your projects. Work is plentiful, so the carrot of "the next job" is no longer the primary motivator. However, trade contractors might be more likely to perform well if you take a vested interest in them as valued business partners. In fact, one top contractor recently changed their companywide nomenclature from "subcontractors" to "trade partners" to communicate—both internally and externally—their commitment to this level of partnership.
Communication
Two-way communication, early and often, with parties upstream and down, will enhance your ability to manage your projects in uncertain labor conditions. Consider adding project management staff to oversee and support quality, safety, and other job site activities, especially where new workers or subcontractors are involved. Watch for warning signs, especially in riskier scenarios such as the end of the day, if key personnel are absent (circumventing the tendency for others to "fill in"), and activities nearing completion up against a hard deadline.
Beware of brokered labor, and monitor subtier payments to assure your valued workforce stays viable. Address schedule, manpower, escalation, and contingency concerns up front in the prime contract with the owner in consideration of a current "hot market" climate.
Reboot Interest in the Construction Industry
Construction is the oldest industry in the world. Every single project is a unique piece of art. That's an exciting and inspiring perspective that we should leverage to attract and retain talent, spark enthusiasm, and reboot interest in construction. There are three important ways for us to do this, and no better time to start than now.
Solution #1: Construction Technology
We are competing for intellectual capital with Apple, Google, Amazon, and the like. Embracing new construction technology is a business imperative. It can advance our work efficiency in the field and keep us relevant. It can make construction a more attractive career for younger generations and more satisfying for the more experienced worker, too.
Robotics can help workers work more safely and more productively. Advances in automation, prefabrication, and modular building can help protect workers by actually removing them from the hazards of construction where it's feasible to have a machine perform portions of work. Do more with less. Building information modeling and lean construction processes can help better organize, schedule, and forecast issues before they become problems that turn into fast-track work, which is inherently riskier.
It's important to be patient with the learning curve and understand that innovative technological advances will take time to adopt and integrate, both educationally and culturally. It may take more human capital before it takes less, but the benefits will ultimately outweigh the challenges. Technology brings better productivity and safety, with the added bonus of attracting and empowering the younger generations and even learning from them. There is untapped potential in millennials and Gen Z, which can bring the allure and, frankly, the "sexy" back to construction. We either use it, or we will lose it!
Solution #2: Diversity
Let's reach into the untapped pool of talented individuals who perhaps never considered a career in construction and show them how fun, rewarding, and unique the industry is. A shortage of skilled workers and managers in construction is not merely a numbers problem; it's a perception problem. How do we make a career in construction attractive to everyone? Are we inclusive as an industry? Personally, I think we should bring back Rosie the Riveter.
Solution #3: Mentorship, Sponsorship, and Apprenticeship
These programs provide personal and professional enrichment at all levels. Newer workers benefit from the vast experience of the more senior workers, and the more experienced workers can expand and possibly extend their careers by shifting away from the more physically demanding roles. Maintaining an intellectually stimulating environment is one of the cornerstones of talent retention. Some companies are adopting "earn as you learn" incentives that help pay for training, education, and other learning programs while maintaining the worker's value to the company. Lastly, be sure to include and encourage the human-to-human element of mentorship and training, which is just as important as the book smarts.
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