In recent years, construction costs have exploded, therefore pushing homeownership out of reach for many Americans. However, all said and done, this is no new concern – in 1978, there was a warning given by the US Government Accountability Office that rising costs were indeed threatening the American dream. At that time, the median home cost was just around $44,000, which was less than three times the median household income. If you talk of the present times, the figure has climbed up and gone past $415,000, which is more than five times what the median American makes today.
One of the most overlooked elements behind this surge is labor cost.
In a recent study, which analyzes lower wages in construction as well as workforce trends throughout more than 20 occupations within construction from 1999 to 2023, it has been found that the unskilled low paid workers – in low roles—saw the largest gains in wages. And the aftereffects of these gains are seen across the entire construction sector.
A transitioning construction spectrum
There is a lot that can change in 25 years—the last time, the researchers evaluated the construction labor trends at this kind of scale. In those times, lower wages in construction, driven in part by the rise of affordable trade schools and also in part by falling union membership.
In today’s times, the landscape looks completely changed. The construction sector is indeed grappling due to a consistent shortage of labor, facing a yearly shortfall of over half a million workers. Simultaneously, the wage dynamics have also transitioned in a great way.
The fact – the biggest gains are availed by the lowest-paid rolesÂ
It is worth noting that construction projects happen to rely on a wide array of roles – right from the highly skilled professionals, such as electricians and engineers, to lower-skilled or unskilled workers. It is a known fact that the unskilled low paid workers go on to handle physically more demanding tasks, such as concrete mixing, digging a trench, or preparation of a site, and earn lower wages in construction. Due to this, the contractors often hire more of them.
Although the contractors tend to rely on expensive skilled labor, when it comes to estimating the project costs, the recent study has found out that the unskilled low paid workers have witnessed the largest wage gains in the recent decades that have gone by. Their wages, if we talk of a figure, have risen by 2.75% to almost 3.5% every year as compared to the under 2.5% as far as the most skilled roles are concerned.
The size when it comes to the construction workforce is also changing, with 88% of the US construction firms showcasing challenges to find workers. This kind of shortage is specifically among the unskilled labor. For instance, half as many people are working as unskilled helpers now as compared to what it was in 1999.
Due to the given trends, to curtail the budgeting shortfalls as well as project risks, it has been encouraged that the contractors plan for higher costs when it comes to low-skilled workers. The study goes on to offer a simple method in order to help anticipate the wage trends, which the contractors can make use of in order to estimate the labor costs in the future.
The hike in wages happens to have a ripple effect
The fact is that not only has the unskilled occupation gone on to see the biggest wage jumps, but they have also influenced the wage changes across other trades too.
By way of using econometric models, the occupations have been evaluated as a part of an interconnected system. It has been typically found out that the trades that are involved early in a project go on to influence wages for trades that come later. Especially unskilled construction laborers who take care of tasks such as site preparation as well as material handling go on to emerge as the leading drivers when it comes to trends throughout the industry. The fact is that when their wage rises, others tend to follow.
All these insights happen to suggest that the contractors should track the early-stage wage trends more closely. When the wages begin to rise among the early trade or unskilled low paid workers, it is often the signal that a broader labor cost is going to rise as well. Much of the planning that can be done ahead can help the firms to manage the cost in a more effective way.
The recent world events, like COVID-19, the Russia-Ukraine war, and the 2018 steel and aluminum tariffs, have gone on to bring unimaginable challenges to the construction sector, which, by the way, is still dealing with their aftereffects. In addition to this, the worsening labor shortages and the new tariffs, as well as a global supply chain crisis, mean that the industry will continue to suffer and face significant hurdles.
But tracking the market data goes on to offer a valuable opportunity when it comes to understanding the emerging trends as well as developing strategies that respond in a more effective way.