As the economy recovers, skilled labor may be scarce
From April through October, the general U.S. unemployment rate hovered above 9%, according to the U.S. Bureau of Labor Statistics (BLS). However, in December, as revealed by its most recent jobs report released January 6, the rate decreased by 0.1% to 8.5%. “Overall, unemployment is now at its lowest level since February 2009,” said Anirban Basu, chief economist for Associated Builders and Contractors (ABC), Arlington, Va., in a press release accompanying ABC’s analysis of the BLS data.
Unfortunately, the recent improvement in the nation’s general employment situation is too new to have carried over to construction employment just yet. In December, the construction industry unemployment rate rose to 16%, a marked increase from 13.1% in November. Yet, the rate remains lower than the 20.7% rate experienced in December 2010. “The increase in construction unemployment is primarily associated with seasonal factors and should not be interpreted as evidence of industry decline,” said Basu. “While major economic headwinds remain, including elevated levels of distressed properties and disciplined lending, the worst appears to be behind the U.S. construction industry.”
In the two years following the recession, the unemployment rate for construction averaged 19% (in 2009) and 20.6% (in 2010). In 2011, the construction industry added 46,000 jobs — up 0.8% from 2010. This represents the “best industry performance since January 2007,” according to ABC. The average annual construction unemployment rate in 2011 was 16.4% (click here to see Fig. 1), although the actual numbers of unemployed construction workers vary throughout the country. “Recovery won’t be uniform, and local programs are in the best position to know their local market,” says Beth Margulies, director of communications, National Electrical Contractors Association (NECA), Bethesda, Md. “Local apprenticeship programs will adjust recruiting as their local market needs dictate. What’s happening in Washington, D.C. won’t be the same as the market in Wichita.”
Surprisingly, contractors — particularly ones who work in a specialty trade — may have difficulty attracting and retaining highly skilled talent in 2012, despite the construction industry’s high unemployment rate. In fact, Grant Shmelzer, executive director for IEC Chesapeake, Odenton, Md., says he can’t find trained workers to fill positions, despite having graduated 80 electrical apprentices from IEC Chesapeake’s four-year electrical apprenticeship program in May. “On average a month, I probably have 10 to 15 positions open for apprentices,” he says. “For February, two of our companies have already put me on notice that they will be hiring.”
The specialty trades are in more of a public relations bind than an employment crisis, maintains Shmelzer, who has been with IEC Chesapeake for more than 15 years and says he’s never seen such a stigma associated with his trade before. “Because the construction industry has taken a beating, it’s been really difficult to find people who want to get into the industry,” he explains. “The news says one thing, and reality says another.”
In fact, BLS estimates that by 2014 45% of all job openings will be in middle-skill occupations that require some training — including plumbers, electricians, health care workers, legal assistants, machinists, and police officers. In addition, Shmelzer cites a May 2010 report by The Baltimore Workforce Investment Board’s Committee on Training and Post-Secondary Education as proof that electricians will be in demand in his area. According to “The Talent Development Pipeline Study,” there will be a 34.2% increase — 1,225 total jobs — in job openings for apprentice-level electricians in Baltimore alone by 2016 in comparison to the number of electricians in the area in 2006. “Obviously, those people need to be in the pipeline this year,” Shmelzer says. “And I can’t find them. There’s still a significant skilled labor shortage in the Mid-Atlantic region, and it continues to be frustrating for everybody. I am warning my contractors nonstop, but the bottom lines and the margins are so small, some companies aren’t preparing for the future. They’re just trying to get through today.”
Shmelzer points to the retirement of the baby boomers and early retirement options for other workers as reasons for job openings in the industry. “We had a significant older average age of an electrician,” he says. “Then those people retired, and we didn’t have enough people coming into the system to supplant them.”
Added to that are advancements in renewable energy sources, lighting systems, and even low-voltage installations. “Our industry has just revolutionized,” Shmelzer says. “Our contractors are installing all of this technology. Plus, [electric] utilities are facing a tremendous labor shortage tied to the smart grid. So that’s all going to cause a labor shortage.”
Additionally, training initiatives by the National Joint Apprenticeship and Training Committee, such as the Electric Vehicle Infrastructure Training Program and its “Green Jobs” curriculum, have helped NECA contractors meet customer demand in the growing green market, but have entrenched skilled workers in an industry related to electrical construction but not actually in the field. “Many electrical contractors moved into renewable energy and energy-efficiency work during the recession to diversify their operations,” says Margulies. “‘Green’” energy is still electrical, so the skills that workers learn in the apprenticeship have facilitated contractors taking work like efficient lighting retrofits and solar and wind projects.”
To help encourage enrollment in its apprenticeship program, IEC Chesapeake recently launched a collaborative effort with the Army National Guard to implement the Guard Apprenticeship Program Initiative (GAPI), a pilot program that will provide career and training opportunities in the electrical field for service members enrolled in the Maryland Army National Guard. GAPI, with IEC Chesapeake for the Maryland/Washington D.C., region, will serve as the template for future National Guard apprenticeship programs nationwide.
According to Shmelzer, refugees from other industries make great apprenticeship candidates. He says his chapter is seeing a “better caliber of individual.”
“We’re seeing career changers who were predominantly in the financial sector or other construction occupations, which have just gotten hammered,” Shmelzer explains. “Or they were in lower-paying jobs, such as the hospitality and food industry, which, in the Baltimore marketplace, has gotten hit hard.”
While electrical apprenticeship programs find ways to increase their numbers, some analysts are wary of increases in the numbers for construction employment. With construction spending remaining stagnant, decreases in construction employment don’t necessarily signal additional construction jobs. During the 2011 Market Insights Webcast Series, presented by Reed Construction Data, Norcross, Ga., in October, Ken Simonson, chief economist for the Associated General Contractors of America (AGC), Arlington, Va., pointed to the drop in unemployment construction experienced in 2011 — before the release of the November figures. “The unemployment rate in construction has come down sharply in the last 12 months — from 17.2% in September 2010 to 13.3% in September 2011,” says Simonson. “That ought to be good news except that these workers are not finding jobs in construction. With construction employment up only a tenth of a percent, this means that these former construction workers are either finding jobs in fields like manufacturing, truck driving, and services, they’re going back to school or training, or they’re just plain leaving the workforce. That’s a problem for contractors who will be looking for workers in a year or two.”
At the Chesapeake chapter of IEC, Shmelzer has seen this reaction to the cyclical nature of construction before. “That’s what’s hurt our industry during the last recession,” he says. “People didn’t like getting laid off, so they found something more stable. Our industry still doesn’t have the best reputation. That goes against us.”
According to Shmelzer, during lean times, many electrical workers will find jobs in facility management for hospitals or government institutions. They may even give up construction for inspection work. “There are a lot of choices in the Washington D.C.-Baltimore area,” he says. “There are lots of other opportunities within our industry outside of the usual new construction component of it.”
However, this mass departure from the construction industry may actually force an increase in the cost of skilled labor, if only gradually. “Meanwhile, the employment cost index for construction has tapered off very sharply,” says Simonson. “Rising at 4% in 2008 — this indicates the increase in wages and benefits — now it’s only up 1.2%. That overstates what’s happened in many markets where union locals or non-union contractors have basically frozen wages or frozen benefits, even cut them back for now.”
Still, Simonson goes on to add that although labor costs will not be an issue this year, they will gradually rise because of this exit of skilled workers (click here to see Fig. 2). “Companies are going to have to bid more to get them back,” says Simonson, who is predicting labor costs to rise between 2% and 4% from 2012 to 2016.
For either lack of projects or skilled workers, industry analysts aren’t expecting construction employment to pick up substantially this year. ABC is predicting an increase of only 0.4% in nonresidential building construction employment and an increase of only 1.5% in residential construction employment (click here to see Fig. 3). “Employers will continue to seek increased productivity among existing workers in order to boost weak industry margins,” Basu says.
This will be true even among trade contractors. In the “2012 U.S. Markets Construction Overview” report, published by FMI Corp., a Raleigh, N.C.-based management consulting and investment banking firm for the engineering and construction industry, Scott Kimpland, director at FMI, and Randy Stutzman, managing director with FMI Capital Advisors, Inc., write that despite a few more work opportunities this year than last, for trade contractors to be successful in the “new normal” — which includes unstable funding in both the private and public sectors, limited construction demand in many sectors, and hypercompetitive pricing in a buyer’s market where low price is the priority for the majority of buyers — they must find ways to increase productivity with fewer workers. According to the report, trade contractor companies should focus on Integrated Project Delivery Model (IPD); Building Information Modeling (BIM); multitrade prefabrication and modularization; lean project delivery or management methods; investment in equipment and/or tools that affect productivity; formal leadership and management development programs for field managers; and strategic approaches to material purchasing and buying.
According to the report, the benefit of these items “might be a direct cost savings; in others the benefit may be a way to deliver on what appears to be an impossible schedule (using traditional techniques); and yet on others, the benefit may be in how you can use it to solve a unique or challenging customer problem.”
Furthermore, these high-skill items also limit a firm’s competition. “While price and economics are still important in these situations, the competition is limited and typically includes good firms that also understand how to price their work appropriately,” write Kimpland and Stutzman. “While none of these strategies or tactics are the perfect answer, and in some cases thrown around simply as marketing buzzwords, there are contractors that have figured out how to make them true game changers. These firms will put significant distance between themselves and the rest of the herd that discounts these ideas and waits for things to get back to normal.”