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Construction Labor: A Complex Issue

By Rebekah Morris for Arizona Builder’s Exchange

National headlines read “Construction Faces Major Labor Shortages; Will Drive Prices Higher.” Locally, however, the story is much more complex.

Speakers at Friday’s Valley Partnership monthly breakfast provided insight from high-level personnel at local heavyweight firms. Panelists included Jerry Barnier, Founder of Suntec Concrete, Brad Nelson, General Superintendent for Hensel Phelps, Jeff Eschliman, VP of Operations for Maracay Homes, and Fred Ingersoll, Director of Training & Apprenticeship for the Arizona Builder’s Alliance (ABA). Moderator John Divall of Lincoln Property Company guided the discussion and asked questions from an Owner’s point of view.

Several resources track construction labor – we use the Arizona Department of Administration’s monthly report for our numbers as the most accurate local source. At its peak, construction labor in the state topped 244,300 individuals in June, 2006 and hit a low point of 109,500 in September, 2010. The most recent report pegs the statewide labor force at 132,500.  The sheer volume of lost workers is staggering – over 55% of an industry wiped out in just over four years.

The slow pace of recovery has tempered the demands on the much reduced workforce, however now that development projects are coming back quicker, the lack of workers will likely be more noticeable.  In the five-plus years since the low point, only 17% of the lost jobs have been recovered.

Not only did the state lose over half its workforce, the recovered jobs are only producing about 90% of the work product a similar group did in years past.

Additional factors that influence the shortage include: market sector, union vs. non-union, size of project, and availability of training.

Shortages by Market Sector

The residential side is clearly feeling the pinch more than commercial markets.

Eschliman stated that Valley homebuilders would build more if they could. Labor is the limiting factor, delaying delivery of new homes and constraining the outlook for 2016 deliveries. He noted that shortages range from 15-30% short in taping and painting and up to a 50% in residential framing labor.

Builders are seeing true price increases – from re-bids on existing developments to new project pro-formas not holding true due to increases in labor costs. Nelson echoed that subcontractor proposals are starting to add escalation into quotes. To date, they have been successful at negotiating them away by looking at corresponding decreases in commodities, most notably, fuel.

By Trade

Barnier says he doesn’t see a labor shortage. With over 700 craft personnel, he arguably controls one of the largest labor forces in the state. He would be one to see and feel a labor shortage first-hand.

What he sees, rather, is a market that is severely fragmented and very competitive. Suntec attracts labor by providing workers a future through structured training and heavy use of technology in its projects. He notes that turnover has remained constant, but it’s easy to show a great future in craft labor to a young person “once they have a couple dead-end jobs” after high school.

Nelson and Eschliman echoed more of the sentiments that are showing in the media – shortages in framing, drywall, and paint are inhibiting project completions. Nelson stated that skilled trades of MEP appear stable and are able to deliver on the commercial projects they have.

Training

Ingersoll provided a unique perspective, talking about why construction firms don’t train workers; according to national studies, they don’t.

Training is not only expensive to implement and sustain, the lost productivity cost is prohibitive. Even after firms invest in training, turnover causes all that investment to walk out the door. All the panelists agree that new hires may claim to be skilled tradespeople, but in reality, their skillset is woefully overstated. Ingersoll even pointed to so-called “You-Tube Experts” entering the workforce saying, “Well, I watched a video on how to paint, so now I’m a skilled painter.”

Nelson, Barnier and Ingersoll all point to a training program as a major solution to providing enough workers to build the industry’s projects. The state has recently restored funding for technical education and Ingersoll provides comprehensive training through the ABA.

Programs such as the Homebuilders Association Veteran’s Outreach, ABA’s training, and individual firms structured training provide workers entering the industry with a path to learn valuable skills that only enhance their long-term employment prospects. Ingersoll noted the Federal Workforce Opportunity Investment Act (WOIA), which was originally intended for businesses, but now applies to individuals as well, may cover the cost of skills training.

Outlook & Solutions

Training and technical education is only part of the solution. Panelists also pointed to a guest worker program to support construction labor and an overall cultural shift to let high schoolers and other potential workers know that a career in skilled labor is an option.

It’s a great option for someone who likes to work with their hands, gets satisfaction from visible progress, and doesn’t want to incur the student loan debt that so often comes with a four-year college degree.

As construction rebounds, demand for skilled labor will only increase. There seems to be no lack of individuals who would gladly take a well-paying job working construction. The disconnect appears to be in communicating the opportunities to the unskilled and untrained workforce, and an opportunity to bring that workforce up in skills and education.

Why Size Matters

While no one from the panel explicitly stated this, it’s apparent that the size of the project and the firm matters – larger projects hold more sway and are able to demand staffing levels that smaller projects can’t compete with.

The panelists all represented larger corporations – their long-standing relationships with clients and contractors enable them to request top talent to staff their jobs. Additionally, they don’t deal with issues like the effects of SB 1070 and undocumented workers – they’d never hire them in the first place.

They don’t see problems like the ripple effect of misclassifications of workers because subs who do this wouldn’t make it through the arduous prequalification process.  They realize the investment in continual training and education is required to attract and retain employees at the craft and management levels.

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