Scant availability of skilled construction workers has hampered home construction at various times in the past few years of recovery. But the shortfall seems to have grown more acute of late, as new-home sales are up 21.2% so far this year from the same period last year and commercial construction has increased steadily.
This is an interesting phenomenon for several reasons. First, what happened to all of the construction workers that were laid off after the housing bust? Second, what is happening to wages in the construction industry?
In particular, why have wages not risen to a point where the market clears? Or have they in fact risen, and the phrase “scant availability” of workers means “scant availability at the wage that we would prefer to pay,” which is below the market-clearing wage.
It’s the same in the tech industry. I haven’t had a raise in 10 years, granted I make low 6 figures, but we need all these H1B workers to deal with the shortage. People wonder why Donald trump is winning.
With all due respect to your personal situation, the tech industry is going wild right now.
Development, IT, and QA are all areas where you get your door beaten down by employers wanting to hire you. Moreover, if you are more of a risk taker, there is a huge amount of financial assistance available for launching new companies. Not because people love you, but because a good new tech company can easily make its investors filthy rich.
I think the key word here is “skilled”. To keep up with the boom, builders did “old fashioned” construction until 2008 because it allowed them to quickly hire vast numbers of workers. To survive the bust they modernized and shed most of their unskilled labour. Now they’re trying to grow with more-skilled labour and there’s not much left. (Anecdote: My brother worked for a homebuilder through the bust — as an under-appreciated draftsman in FL — before being laid-off a couple years ago. He was rehired by a stronger builder at a much higher rate of pay and has been far more successful since then. The sluggish 9 to 5 types that weren’t as good as him have never been rehired.)
Much like the technology labour marketplace, there’s the usual tension between wage pressure due to a limited number of truly skilled workers and the revenue pressure of a hyper-competitive market for the high-tech companies that employ them. The old-tech stuff is just gone, and no boom will bring them back again.
In technology the pressure shows up in the H1-B debate, which is really a variation on the same pressure in construction, where for decades it was undocumented workers. After 2008 when many of those workers went home to Mexico and didn’t come back, and when the decaying marketplace provided PR cover, construction up-skilled. Now they can’t find enough of the new-style workers, and they don’t have that cute H1-B workaround either.
I would expect that we’ll see this same tension play out in any competitive industry now, when it sheds the old-school unskilled approach. I’ve decided that this is what “market clearing” looks like when worker skill has multiple equilibria. Skill is not on a spectrum that can adjust the way prices do. You can’t change the price incrementally because only a certain number of workers “have it” and the rest don’t. If you pay a little more, you become unprofitable and are only really rearranging the existing workers, not bringing in new workers.
Yes. The rules of the labor market have been changing such that the old bottom of the job market doesn’t exist any more.
Defenders say that the people previously working at the bottom of the market are all going to get raises now, but that’s a very speculative claim. The more conventional micro-economic view would be that that the labor market is an actual market, that labor is traded on that market, and that supply and demand are accurate models for it. From that view, raising the minimum total compensation is going to price some people out of the market.
Commentors above hint at it.
From personal observation I think it has two parts.
1. There are some jobs where there are never enough people with the right skills at any wage. The key posts in the software industry still basically HAVE to offer equity participation (a chance at a huge win) to recruit people.
2. There are probably lots more jobs where market forces mean that what is economic is productivity P at price $. People with the skills to produce P at $ get paid relatively well. People who can do at best 1/4 P for 1/3 $ are unemployed.
Organizations that cannot produce P for $ are listed in the monthly bankruptcy auction publications.
There are more and more jobs where you cannot afford to pay any competent human being to do it. It has to be done by some kind of automation. Which means employers are often short automation experts and swamped with people who can only perform zero value jobs.
Arnold – you often correctly point out that the economy is NOT some giant factory that makes 1 or 2 goods and is not homogenous. At various times over the years I’ve pointed out in the comments to this blog that people and skills are also very much NOT homogenous. So when thinking about PSST, we must think a LOT about what people have what productivity.
It is quite possible for a person to be a Vickie in terms of work habits, interactions, and so forth, and still be unemployable because their achieved or achieveable productivity (skills) are not marketable at any sensible price.
This is amazing.
If there is a labor shortage for whatever reason, those qualified for the work will see rising wages. Full stop.
If any of the above comments remotely reflected this reality, those few qualified people as above described would be seeing DRAMATICALLY higher incomes. We would see wage gains in the national stats. We would see a quick fall in the long term unemployed.
This stuff about H1-Bs and unskilled unemployable construction workers is fantasy.
But it is useful propaganda argument against the unwary, and sadly, succeeds in the public space, as reflected here.
Perhaps this explains why job *openings* have exploded, while actual hires have been far more tame:
http://www.calculatedriskblog.com/2015/09/bls-jobs-openings-increased-to-58.html
It has been almost six years since construction employment peaked. During that time many of the unemployed construction workers found employment elsewhere — and not just in the oil patch. They probably have a negative attitude towards construction jobs after this experience and have no desire to return to the industry.
Moreover, during that six years virtually no new labor was hired into the construction industry so there is a almost complete absence of construction workers with two to five years experience– where the bulk of jobs changes occur historically.
So employers are probably correct that higher wages would not attract construction workers into the field. unless they massively raised wages enough to attraction old construction workers back from the jobs they currently have.
In California, ALL electricians must either be licensed by the state or be in an approved Apprenticeship program. This has been the rule for 10+ years in CA. It takes about a year to get licensed and you have to pass a difficult written test. Most small non-union contractors do not have apprenticeship programs, so it is difficult for them to staff up.
“In particular, why have wages not risen to a point where the market clears? Or have they in fact risen, and the phrase “scant availability” of workers means “scant availability at the wage that we would prefer to pay,” which is below the market-clearing wage”
He could mean “scant availability” at a wage that allows new construction to compete with existing housestock. Where I live, appraisers effectively put a limit on how much growth housing prices can see. You simply will not see quick growth in home prices; even if the demand would push it up, there are not enough cash buyers to create comps for appraisers, and the cash buyers that are present are of course not in a hurry to pay above what a house will appraise for knowing that they likely won’t be competing with other cash buyers.
On new construction, appraisers/banks are somewhat willing to loan at higher valuations, but buyers know that they have a relatively short time before their “new construction” premium disappears on their house, which makes them hesitant to build if the spread will be too big compared to existing home prices, even if the banks are willing to loan them the money.
This is probably a relatively local phenomenon and doesn’t apply in areas where appraisers are used to house prices growing faster than wages. Where I live though, we are not too constrained by available land and if appraisers see houses growing even 6% year over year in existing neighborhoods, they get spooked.