Similar to other industries, the ongoing labor shortage crisis in the U.S. is detrimentally impacting construction activities in both the residential and commercial sectors. According to the Bureau of Labor Statistics, the turnover rate for the construction industry since 2021 has risen to 56%, and, according to a July 2023 Associated Builders and Contractors and Markenstein Advisors report, the unemployment rate for construction is roughly four times the national average.
So where did all the workers go? During the height of the 2020 COVID-19 pandemic and for the next few years, the country experienced what most people are calling “The Great Resignation.” Many people took jobs with better pay and better alignment with their values. Approximately 40% started a new business. Many elected to become stay-at-home parents, forgoing a paycheck to raise their families while the other spouse works—this was driven in part by the rising costs of childcare. About one in every four Baby Boomers retired. Others took part-time employment, entered military service, or left the workforce due to disability or injury.
As of 2022, construction worker demographics revealed that the average age was 38 years old, primarily white males (93.8%) with an average salary of $29,144, according to a Zippia article, “The Career Expert Construction Worker Demographics and Statistics in US.” The same article revealed that 70% of U.S. construction workers are likely to suffer workplace injuries and 89% are more likely to work on construction projects in the private sector.
Impact on Construction Activities Due to the Labor Shortage
The construction industry experienced a significant detrimental impact due to the lack of workers and lack of skilled professionals for these projects. First, there is less overall manpower for construction projects—including a lack of skilled workers, trained supervisors, and proper quality control/quality assistance personnel to ensure a safe, compliant and successful construction project.
In addition to the lack of people on the job site physically performing the construction activities, there is a lack of manpower on the supply side, negatively impacting the delivery and production of key construction components, raw materials, and critical tools to complete the construction job. Many construction companies are increasing their use of technology to eliminate manpower and save costs, but this technology is typically untested and too new to truly replace the workforce on construction jobs, and the technology requires additional manpower to operate, train, and implement it.
Another detrimental result of the lack of proper labor on a construction site is the increased number of OSHA violations, construction accidents, and major site injuries due to lack of proper supervision and safety protocols. There is less attention to detail, less training, and less experience and skill on the job site. There is sloppy workmanship, less detailed compliance with building regulations and county/state requirements, and less compliance with the plans and specifications for the project.
Finally, there is a “pipeline problem” without the recruitment of the next generation of construction workers, supervisors, quality control personnel, and other construction professionals. There is less mentorship, apprenticeship, and training being provided to young people to join the construction workforce. This creates a situation of high turnover, retirements, and an overall lack of continuity and stability in the workplace. Additional problems arose during the pandemic with many workers having multiple jobs and projects contemporaneously being worked on by the same construction crews—stretching the thin workplace even thinner.
The ripple effect of these material and labor shortages: delays, overages, project extensions, and sometimes even abandonment of the projects. This becomes a monetary nightmare for the builders/ developers who have contractual construction deadlines, liquidated dam[1]ages for delays, potential penalties, and inspection timeframes that add costs not contracted for when bidding the project. This, in turn, increases the overall cost of housing, commercial, and industrial projects, and government construction projects—which is ultimately passed onto the consumer, homebuyer, and companies requiring the space to operate their respective businesses.
Impact on Construction Claims
There is also a corollary to the increased number of construction-related claims (defect and injuries) as a result of the labor shortages. Claims professionals are identifying an increased number of delay claims, breaches of contract between the owner and contractors, expanded workers’ compensation claims, increased claims for breaches of implied and express warranties, increased site accident and injury claims, increased claims for OSHA violations, increased claims for failing to comply with plans and specifications, and increased construction-defect claims for poor workmanship. There are also higher claimed damages due to the labor shortages, including loss of use, alternative living expenses, construction fails—including design errors, major site injury claims, and fraud claims. The amount of monies spent on construction-defect and construction accident claims, both in terms of defense and indemnity (settlement or judgments), has skyrocketed over the past five years.
There is also a higher level of fraudulent claims due to the hiring of unskilled workers who fake construction-site injuries—including falling from scaffolding, ladders, and cranes—and later retain notorious plaintiffs’ counsel who arrange for unnecessary medical treatments to increase their claimed damages. Many of these plaintiffs are being bankrolled by third-party litigation funding that essentially gambles on the outcome of construction accident litigation. This is becoming a widespread issue in major metropolitan areas, including New York, Boston, and Los Angeles. In fact, several prominent insurance companies are filing federal RICO lawsuits to root out this fraudulent litigation.
Solutions to Curb the Labor Crisis
While it is easy to identify the numerous problems facing the construction industry due to increased labor short[1]ages, there are some practical solutions that can be implemented to help address and partially resolve this crisis:
- Recruitment. Recruit from the high school level to enroll graduates into trade schools and apprenticeship programs with the construction trades. Make the industry an attractive alternative to college. Rather than accumulate a large college debt, high school graduates can directly enter the workforce in the construction industry and begin earning a salary that will be comparable to the college graduate after four years. Focus on continued retention of employees including rewards/acknowledgment and proper compensation.
- Training. Improve both in-class and on-the-job training for the construction workers. Provide mentoring, apprenticeship programs, and in-field instruction. Develop the future skilled workers who can then provide training to the next generation, resolving the “pipeline problem” and ensuring quality construction on the job site. Provide cross-training, leadership development, engagement, and community/ industry participation (trade unions, construction industry associations, etc.), and provide opportunities for outside training, including seminars, conferences, college, and trade studies and education through involvement in professional organizations.
- Culture. Create a workplace environment that caters to today’s workers. Allow for hybrid and flexible work schedules, invite collaboration and mentorship, and allow for work-life balance and manageable workloads. Provide team building opportunities and social engagement in the workplace, and establish practical diversity, equity, and inclusion initiatives for the companies to attract and keep talented construction employees.
- Create a succession plan. Continuously develop training and leader[1]ship programs to cultivate the next generation of leaders, supervisors, and managers in the company. Encourage the more senior personnel to delegate responsibilities to the upcoming generation of workers. Establish a viable pathway for growth and promotion within the construction company.
- Embrace technology. As more construction technologies are onboarded into the workplace, there will be an increased need for technicians, programmers, and other personnel to interface between the construction job site and the technology. This will create opportunities for new jobs, additional manpower, and additional site supervision to ensure the success of these new products for the construction industry.
While the construction industry is suffering from the same ailments as most industries, it has a real opportunity to make working in construction an attractive and lucrative option for many unemployed people looking for a viable career alternative. By implementing some or all of the above solutions, we are hopeful that the construction industry will weather the storm of the labor crisis and get back to pre-pandemic days with ample skilled, trained and qualified construction workers within the trades improving the overall quality of construction throughout the country.