Late last month we reported the remarkable anecdote of an Ohio factory owner who has numerous blue-collar jobs available at her company, but has one major problem: she is struggling to fill positions because so many candidates fail drug tests. Regina Mitchell, co-owner of Warren Fabricating & Machining in Hubbard, Ohio, told The New York Times this week that four out of 10 applicants otherwise qualified to be welders, machinists and crane operators will fail a routine drug test. While not quite as bad as the adverse hit rate hinted at by the Beige Book, this is a stunning number, and one which indicates of major structural changes to the US labor force where addiction and drugs are keeping millions out of gainful (or any, for that matter) employment.
Mitchell said that her requirements for prospective workers were simple: “I need employees who are engaged in their work while here, of sound mind and doing the best possible job that they can, keeping their fellow co-workers safe at all times." And yet, almost nobody could satisfy these very simple requirements.
Whether it was due to pervasive drug abuse, or for some other reason, but fast forward two weeks when in response to a special question in the July NAHB/Wells Fargo Housing Market Index (HMI) survey, US homebuilders said that labor and subcontractor shortages have become even more widespread in July of 2017 than they were in June of 2016.
This is a concern as the inventory of for-sale homes recently struck a 20-year low. And while economists and the public cry for more inventory, many builders are pressed to meet demand. A labor and subcontractor shortage in the building industry has worsened over the past year, according to the National Association of Home Builders/Wells Fargo Housing Market Index survey of single-family builders.
The July 2017 HMI survey asked builders about shortages in 15 specific occupations that were either recommended by Home Builders Institute (NAHB’s workforce development arm) or that NAHB found to be particularly significant when tabulating Bureau of Labor Statistics data for a recent article on Young Adults & the Construction Trades. Shortages (either serious or some) were at least fairly widespread for each of the 15 occupations, ranging from a low of 43 percent for building maintenance managers to a high of around 75 percent for the three categories of carpenters (rough, finished and framing).
In addition to workers employed by single-family builders, the HMI survey asked about shortages of subcontractors, which have become even more widespread lately. In the July 2017 survey, the incidence of shortages was higher for subcontractors than for labor directly employed by builders in each of the 15 occupations. At the top of the chart, for example, 85% of builders reported a shortage of framing subcontractors, compared to “only” 77% who reported a shortage of framers directly employed.
According to the NAHB, historically, this has not always been the case: an average shortage calculated across the 9 trades that NAHB has covered in a consistent way since 1996 shows that labor and subcontractor shortages used to track each other fairly closely. Since 2013, however, a persistent gap has opened, with the 9-trade shortage for subcontractors running 5 to 7 percentage points higher.
One possible reason for the shortages proposed by the NAHB, is that some workers who were laid off and started their own trade contracting businesses during the housing downturn have returned to working for larger companies. This would improve the availability of workers directly employed by builders slightly, while shrinking the pool of firms available for subcontracting.
The 9-trade average shortage for labor has increased from a low of 21 percent in 2012 to 56 percent in 2016, and now 63 percent in 2017. And this trend has been very consistent. For each of the construction occupations covered in both years, the shortage percentage, whether for labor directly employed or subcontractors, increased between 2016 and 2017—with the sole exception of excavator subcontractors, for which the percentage remained roughly the same.
In an ominous coincidence, the 9-trade average labor shortage is now at its highest since 2000 (which marked the end of an extended period of strong GDP growth that tightened many labor markets and drove the overall unemployment rate down to 4.0 percent). The current labor shortage seems especially severe relative to housing starts, which have only partially recovered from their post-2006 decline.
NAHB's conclusion: "the historical pattern has been quite consistent across construction occupations. Shortages for most of the occupations are more widespread now than at any time since 2000. The exceptions are shortages that are at their all-time worst since NAHB first started asking the questions in 1996. For directly employed labor, the shortage of painters is now at its worst ever. For subcontractors, in addition to painters, shortages of framing crews and electricians are also at their all-time worst. For excavator subcontractors, the 2016 and 2017 shortages are essentially tied for worst all time.
But what is most troubling is that despite such "record" labor shortages, wages across both the construction sector, and certainly across the entire labor market, just refuse to rise. If a historic lack of qualified workers fails to boost wages.... what will?