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Sustainable Investing
General Investing

New Labor Norms: A Case Study in Construction

Discover the causes and extent of the construction labor shortage and explore innovative solutions to tackle this pressing issue in the building industry.

By Hannah Herold
05/04/2023
New Labor Norms: A Case Study in Construction - Hero

Key Takeaways

A chronic worker shortage and high turnover in the construction industry could negatively impact U.S. economic growth.

The perception that construction doesn’t require digital-era skills or technology is outdated and could turn off younger workers the industry desperately needs to attract.

Construction jobs are changing. Attracting the workforce this industry needs requires strategies beyond traditional labor relations to improve human capital management.

Economies around the world continue to recover from labor and supply chain disruptions caused by the pandemic, and CEOs in the U.S. and elsewhere frequently note the challenge of attracting and retaining qualified workers. And, as the global economy is increasingly technology-driven, there is a demand for tech-savvy workers in every industry, even in traditionally blue-collar jobs.

These ongoing issues are shining a spotlight on the importance of human capital management in the U.S. labor market. We believe this attention is long overdue.

Evaluating the “employee experience” has traditionally focused on white-collar jobs but is now seen as important across all levels of a workforce. New efforts to form unions are grabbing headlines, and businesses must look beyond wages and salaries to offer more to current and prospective employees, such as upskilling opportunities and competitive benefits, to tap into a diverse pool of qualified workers. We believe companies that do this well will be better positioned to outperform over the long term.

In this article, we examine this issue by focusing on an often-overlooked industry that is critical to economic growth: construction. Construction work is sometimes seen as unskilled and strictly blue-collar, despite the industry’s need for experienced, skilled employees.

As far back as 1999, research called attention to a shortage of skilled labor in the construction industry and the problem has only increased.1 In 2017, the Associated General Contractors of America called for improved recruiting and compensation, noting that “chronic labor shortages could have significant economic impacts absent greater investments in career and technical education”.2

Here, we discuss some of the social forces that contribute to the labor shortage in the construction industry and explain why turnover in this labor force is often not captured by traditional blue-collar workforce sustainability metrics.

Construction Worker Shortage Drags Down Economic Growth

New home sales are a key indicator of economic health. Buying a new home motivates consumers (who account for roughly two-thirds of the U.S. economy) to buy furniture, appliances, landscaping and more. This supports businesses that manufacture and sell these things, bolstering employment and contributing to economic growth.

In short, new home construction that keeps up with demand creates a virtuous circle of economic activity. If homebuilders can’t hire the workers needed to satisfy the demand for new homes, home buying and related consumer purchases are delayed. That creates a drag on what could be faster growth throughout the economy.

Construction also powers economic growth beyond home building. Infrastructure projects need construction workers to repair bridges and modernize airports and other transit facilities. Infrastructure supports the economy by making it faster, safer and easier to move goods and people to where they need to be. A lack of qualified construction workers to build those infrastructure projects causes bottlenecks, including bridges that are closed for repair, inadequate airport capacity, and so on.

Why Is There a Construction Labor Shortage?

Two major causes of construction worker shortages, opioid use and demographic trends, are thorny problems. The opioid epidemic is not just the result of young people experimenting with drugs. As of 2020, almost two-thirds of opioid overdose deaths in the U.S. were among those ages 35 and older. Seventy-one percent were male, and non-Hispanic whites were over-represented at 69%.3

Although many factors affect opioid overdoses, opioid use disproportionately impacts rural America and those in jobs involving physical labor. Maps of opioid overdose death rates by state (Figure 1) and construction laborers as percentage of a state’s workforce (Figure 2) show that half of the states with the highest concentration of construction workers also have high opioid overdose rates (Louisiana, Nevada, New Mexico, South Carolina and West Virginia).

Figure 1 | Opioid Deaths as a Percent of the Labor Force Vary Considerably by State

Map of the United States with each state shaded green. The darker the green, the more opioid overdoses as a percent of civilian labor force. Louisiana, Nevada, New Mexico, South Carolina and West Virginia are the highest.

Data as of 12/31/2021. Source: Kaiser Family Foundation’s analysis of Centers for Disease Control and Prevention (CDC) and National Center for Health Statistics data.

Construction jobs as a percent of total jobs per state, relative to the U.S. average, is highest in 10 states. See Figure 2. Half of them have high opioid death rates (a “location quotient” above 1.0 means a heavier concentration of construction laborers than the U.S. average).

Figure 2 | Construction Laborers as a Percent of a State’s Workforce

Map of the United States with each state shaded red. The darker the red, the more construction laborers the state has as a percent of its workforce. Louisiana, Nevada, New Mexico, South Carolina and West Virginia are the highest.

Data as of May 2021. Source: Bureau of Labor Statistics.

The construction industry is plagued by a vicious cycle of substance abuse and worker shortages. The strenuous work and lax enforcement of safety standards cause injuries that often lead to opioid use. This puts a greater strain on the remaining workers and can increase pressure from employers, leading to more injuries.4 Roughly 15% of construction workers misuse opioids and other substances compared to just under 9% of the general population, and they account for about 25% of opioid fatalities.5

Demographics also play a big role in the construction industry’s worker shortage. As the U.S. population ages, workers who are 55 and older represent a growing percent of the workforce, and the increase in the construction industry is greater than the average across industries.6 Retirements are reducing the already limited pool of experienced workers ­­­­— the National Center for Construction Education and Research predicts 29% of workers who were on the job in 2017 will have retired by 2026. That is expected to rise to 41% by 2031, as the last of the Baby Boomers will turn 65 in 2029.7

These retirees are proving hard to replace, largely due to the construction industry’s image problems. Younger people often shy away from the trades given the perceived stigma of working in these jobs. Instead, many choose to pursue a college degree (at almost any cost ).8 A lack of understanding of what construction work involves, including the range of positions, compensation and opportunities available, exacerbates the problem.9

“The federal government only spends $1 on career training for every $6 it puts into college prep. This funding gap for career training is one of the main reasons so many contractors have a low opinion of the current pipeline for preparing new craft and construction professionals.”{sup}10{/sup}

Steve Sandherr, CEO, Associated General Contractors of America

An inability to attract digital-savvy workers has plagued the construction industry for years, slowing the rate of innovation and digitalization compared to other parts of the economy.11 This is an urgent problem, as data-driven decision-making affects everything from operations to sales channels. Construction companies need in-house digital expertise. McKinsey reports that “digitalization of products and process” is an emerging disruptive force in the construction industry.12

Investments in construction technology totaled roughly $25 billion from 2014 to 2019 (~$5 billion in 2019 alone) compared to $8 billion from 2009 to 2013.13 Major investments were seen in 3D printing, modularization, robotics, building-information modeling and artificial intelligence. Consistent with this trend, in September 2022 the online recruiting site Indeed listed construction technology jobs calling for applicants with knowledge of building-information modeling, virtual reality, augmented reality, estimating software and drones.14

Turnover and Blue-Collar Jobs

Attracting workers to the industry is one problem while reducing turnover is another. Workforce issues are often described as either “labor relations” or “human capital management,” corresponding to blue-collar and white-collar jobs, respectively. Human capital management focuses on a company’s ability to attract, retain and develop talent.

The metrics used include employee turnover, employee satisfaction surveys, professional development training hours and diversity, equity and inclusion (DE&I). In contrast, metrics used to describe the quality of labor relations include hourly wages, the percentage of a workforce covered by collective bargaining agreements, and the number and severity of strikes.

Importantly, labor relations metrics don’t address turnover and its causes, and high turnover impacts sustainability. The cost of turnover affects all companies seeking to retain skilled employees in both blue-collar and white-collar jobs. Minimizing turnover matters in every part of a workforce across all industries. When a company can’t retain employees with the skills needed to make the business work, the business isn’t sustainable.

Turnover Affects Profitability

Research shows that the high cost of employee turnover directly impacts a company’s bottom line. Losing an employee costs a business an average of 33% of that employee’s salary, depending on skill level and seniority.15 Other evidence indicates that ongoing job vacancies represent significant costs, both monetary and otherwise, and the impact can be felt broadly within an organization.16 High turnover may also indicate problems with how companies treat their employee — dissatisfaction correlates to high turnover, which may suggest management problems in other areas.

Turnover is particularly costly in a tight labor market. Demographics in many developed economies, including the U.S., suggest the labor pool may be tight for some time to come as birthrates drop and populations age. And the percentage of working-aged people who participate in the U.S. labor force (i.e., those who are either working or looking for a job) hasn’t fully returned to levels seen before the COVID pandemic.

This has been a factor in keeping unemployment below the level that most economists see as sustainable, contributing to upward pressure on wages and inflation.

Construction Industry Jobs Are Changing

The construction industry is expected to undergo a substantial transformation in the coming years, propelled by factors such as digitalization and a growing need for skilled labor. Over the next 10+ years, up to 45% of the industry’s value could shift to firms that don’t currently have much of a presence in the sector.17

For example, software providers are expected to play a significantly larger role in the construction industry, and a large share of value is expected to move from construction job sites to off-site prefabrication facilities.18 This will impact both commercial and residential construction and require training workers to produce buildings in new ways.

Construction job openings have increased consistently since the Global Financial Crisis. See Figure 3. As of August 2022, there were 407,000 job openings in the industry, up from 362,000 the previous August.19 One trillion dollars in infrastructure spending recently authorized by Congress will further amplify the need for construction workers.20

Figure 3 | Construction Job Openings Have Grown Steadily Since the Financial Crisis

Line chart showing the amount of construction job openings per year from 2000 through the end of 2022. Construction job openings have increased consistently since the Global Financial Crisis. 407,000 jobs were open as of August 2022.

Data from 12/31/2000 – 12/31/2022. Source: Bureau of Labor Statistics.

So how do construction companies attract more workers? We believe the ones most poised to win long term are those that pay more attention to human capital management and offer more than compensation.

Human Capital Management for Construction Workers

As noted above, labor issues in construction businesses often focus on safety — injuries, fatalities, and lost time incidents — but the industry could benefit from embracing broader human capital management practices. By doing so, companies would be better able to reduce employee turnover and address persistent worker shortages, particularly with respect to skilled employees.

Here are aspects of human capital management that are traditionally used in white-collar settings that we believe would improve sustainability for construction firms.

Diversity, Equity and Inclusion (DE&I)

As of 2022, white, non-Hispanic males comprise the majority of the construction labor force and 34% are Hispanic, while only 7% are Black or African American, and only 2% are Asian. The industry is clearly lopsided in gender terms, as only 11% of those in construction jobs are women,21 Why does this matter? Because neglecting DE&I reduces the pool of potential workers.

While the industry’s contribution to the economy recently hit a seven-year high22 its productivity growth slowed to 1% as companies complained about a shortage of skilled workers. 23,24 Recruiting from under-represented groups would help to address this problem, especially since a lack of workforce diversity is expected to be a top 20 risk for construction firms.25

Culture

Research shows that a positive workplace culture promotes job satisfaction, and there is an inverse relationship between job satisfaction and turnover intention.26 Culture is difficult to measure, but it ultimately shows up in turnover, another good reason to use that metric with both white- and blue-collar workforces.

Some construction industry employers are touting a supportive workplace culture and wellness programs (including help for workers with substance abuse problems) along with signing bonuses and higher compensation. Flexibility, career development and mentorships can be other drivers of a company’s culture.

Upskilling

Learning and development are at the core of digital transformation.27 Upskilling reduces turnover by engaging and promoting employees while simultaneously filling digital and technical gaps. A Gallup poll shows 65% of construction and extraction workers in the U.S. are very/extremely interested in upskilling, not far behind the leading group, computer and mathematical workers, at 72%.28 See Figure 4. Associated Builders and Contractors report that ~70% of its contractors partner with high schools and colleges for career and technical internships. Upskilling will be a critical component of success in every industry.

Figure 4 | Construction Workers Show Interest in Upskilling Their Careers

U.S. Workers’ Interest in Upskilling by Occupation

Bar chart showing American workers’ interest in upskilling their careers, by occupation. 65% of construction laborers are interested in ups killing, as of the end of 2021.

Data as of 12/31/2021. Source: Gallup, Amazon. Results from 14,989 respondents.

Construction workers play a vital role in supporting economic growth. We believe that elevating labor practices to address the chronic worker shortage in the construction industry will serve investors well.

Case Study: Toll Brothers

A mid-cap U.S. homebuilder, Toll Brothers has performed well relative to its peers over the last several years — the stock’s one-year total return was three times the industry median, and over three years it outperformed the median by 5 percentage points.

During this period, Toll Brothers reinforced its commitment to DE&I and supportive company culture. In 2020, the company hired its first chief diversity & inclusion officer, established a Diversity & Inclusion Council and began publishing diversity metrics.

In 2020 and 2021, women comprised 40% of Toll Brothers’ total workforce, compared to the industry average of just 10% and 30% occupied management positions or higher.29,30 Racial/ethnic diversity also increased, and minorities now hold approximately 13% of managerial positions. Average employee tenure was 5.9 years in 2020 and 6.3 in 2021, over a year longer than the industry median.31 As a result, Toll Brothers was included on Forbes’ list of Best Employers for Diversity in 2021 and 2022.

These statistics not only tell a compelling story, the company’s initiatives back up the numbers and highlight why Toll Brothers is a great place to work. It provides employee training and career development programs at all levels, from interns to management, offers an employee stock purchase plan and makes contributions to 401(k)s. Unsurprisingly, its annual employee engagement survey score was 87% in 2021.

Of course, there is always room for improvement, and we believe the company would benefit from bolstering its talent pipeline and increasing training.

In 2022, the company received various workplace accolades: Best Workplaces in Construction, America’s Best Midsize Employers and Top Workplaces. We expect Toll Brothers will continue to benefit from its efforts with respect to DE&I and supporting its employees.

Author
Hannah Herold

Hannah Herold

Director of Sustainable Research

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Abdol R. Chini, Brisbane H. Brown, and Eric G. Drummond, “Causes of the Construction Skilled Labor Shortage and Proposed Solutions,” Associated Schools of Construction Proceedings of the Annual Conference, (April 1999): 187-196.

Associated General Contractors of America, “Seventy Percent of Contractors Have a Hard Time Finding Qualified Craft Workers to Hire Amid Growing Construction Demand, National
Survey Finds, “ August 29, 201

Kaiser Family Foundation, “Mental Health & Substance Abuse Use Indicators, Opioid Overdose Deaths 2020,” accessed March 24, 2023.

Bruce Orr, “How You Can Fight Opioid Abuse in Construction,” Construction Business Owner, March 15, 2018.

National Association of Home Builders, “Opioids in the Home Building Industry: Making It Your Business,” accessed March 22, 2023.

Claire McAnaw Gallagher, “The Construction Industry: Characteristics of the Employed, 2003-20,” Spotlight on Statistics, U.S. Bureau of Labor Statistics, April 2022.

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Ashley Gross and Jon Marcus, “High-Paying Trade Jobs Sit Empty, While High School Grads Line Up for University,” NPR, April 25, 2018.

Angelica Carter, “Perceptions of Construction Trade Careers Amid a Growing Labor Shortage: An Explanatory Study,” (PhD diss., Wilmington University, 2022).


Anya Steinberg and Elissa Nadworny, “Community college enrollment is down, but skilled-trades programs are booming,” NPR, March 28,

Maria João Ribeirinho, Jan Mischke, and Gernod Strube, et al., “The next normal in construction,” McKinsey & Co., June 2020.

“The next normal,” McKinsey.

Katy Bartlett, Jose Luis Blanco, and Brendan Fitzgerald, et al., “Rise of the platform era: The next chapter in construction technology,” McKinsey & Co., October 30, 2020.

Indeed, “Construction Skills: Definition and Examples (With Tips),” February 3, 2023.

Terra Staffing Group, “The Real Cost of Employee Turnover in 2021,” November 4, 2020.

Global Technical Recruiters, “What Is the True Cost of Leaving a Position Open?” accessed March 21, 2023.

“The next normal,” McKinsey.

“The next normal,” McKinsey.

U.S. Bureau of Labor Statistics, Economic News Release, “Table A: Job openings, hires, and total separations by industry, seasonally adjusted,” accessed March 20, 2023.

Julie Bykowicz, “Labor Shortage Stymies Construction Work as $1 Trillion Infrastructure Spending Kicks In,” Wall Street Journal, June 20, 2022.

U.S. Bureau of Labor Statistics, Current Population Survey, “Labor Force Statistics,” accessed March 20, 2023.

Associated Builders and Contractors, “Construction’s Contribution to U.S. Economy Highest in Seven Years,” News Release, November 20, 2023.

Cathy Chatfield-Taylor, “Workforce Diversity in Construction Improves Productivity and Profits,” Redshift by Autodesk, July 30, 2021.

Filipe Barbosa, Jonathan Woetzel, and Jan Mischke, et al., “Reinventing construction through a productivity revolution,” McKinsey Global Institute, February 27, 2017.

Chatfield-Taylor, “Workforce Diversity.”

Elizabeth Medina, “Job Satisfaction and Employee Turnover Intention: What Does Organizational Culture Have to Do with It?” (Master’s thesis, Columbia University, 2012).

MIT Technology Review, “Building the necessary skills for digital transformation,” June 15, 2022.

Gallup, The American Upskilling Study, 2021.

Gallagher, “The Construction Industry.”

Lori J. Drake, “The State of Women in the Construction Industry in 2021,” Constructive Executive, June 7, 2021.

U.S. Bureau of Labor Statistics, Economic News Release, “Table 5: Median years of tenure with current employer for employed wage and salary workers by industry, selected years, 2012-2022, accessed March 16, 2023.

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.