Costs and the skilled labor shortage in the post-recession construction climate - by Richards

Andrew Richards, Kaufman Dolowich Voluck

Looking around, it is not hard to observe the uptick in construction projects occurring in both the residential and commercial arena. This is good news for an industry that was so severely impacted by the long recession. But, while the construction industry shakes off the effects of the recession, the industry is now confronted with another critical problem, the lack of skilled labor. Certainly, the lack of skilled labor is not a new issue for the construction industry, but the severity of it in the post-recession climate is more pronounced.

The lack of skilled labor in the construction industry likely has its roots in the recession since many skilled laborers permanently left the industry as a consequence of the economic downturn. There were limited jobs and few prospects for work overall necessitating a move outside of the industry. According to the U.S. Bureau of Labor Statistics, the construction industry lost in excess of two million workers during the recession. Now that the recession is over, many of these skilled workers have not returned to the construction industry. Further, decreased immigration during the recession has impacted the pool of skilled workers, as many individuals chose to remain in their home countries. Likewise, many younger individuals have chosen other industries rather than construction. The lack of a younger skilled workforce is problematic for the construction industry as many skilled laborers retire or are set to retire.

However, regardless of its cause, the lack of skilled labor is creating tremendous headaches for owners, developers and contractors alike. While contractors are having an increasingly difficult time attracting and retaining skilled workers, project schedules and deadlines are often not being met, resulting in delays that translate into lost dollars for all parties involved in a project. Even in the rare instance where additional time is budgeted to account for project delays, it is likely not enough to account for the shortfall in available skilled labor. Given that construction is performed in sequence, subcontractors are left at the mercy of other subcontractors scheduled to perform work before them. Realistically, much of these delays are caused by the lack of skilled laborers who, if they were adequately staffed, could more efficiently perform tasks. These delays translate to higher expenses on the project and lost revenue for the owners and developers who are left waiting longer than anticipated for the work to be completed. Further, these delays could prove incredibly detrimental, as the timing of project schedules is necessary to determine

Jason Lange, Kaufman Dolowich Voluck

the repayment of loans, whether further funding could be secured for this or other projects or even whether profits are realized. Additionally, the lack of skilled labor increases the likelihood that subcontractors may close their doors, as they are unable to complete their work and pay the workers they do have. The lack of available subcontractors translates to decreased competition and is detrimental as decreased competition may drive up costs at the expense of quality and efficiency. At the very least, given that the pool of skilled workers is depleted, contractors and subcontractors are forced to compete with themselves to attract labor. Similarly, contractors and subcontractors may only be capable of staffing one or two projects at the same time, further decreasing the pool of available contractors and subcontractors available.

It appears that the construction industry is responding to the shortfall of skilled labor by taking steps to attract and retain these workers. Recognizing that it may not be able to attract back skilled workers that departed during the recession, efforts are now being made throughout the construction industry to attract new blood. Efforts to attract new employees primarily include paying higher wages. Of course higher wages translate to higher costs which resonate at all levels throughout the project. Likewise, efforts to retain workers also translate to higher project costs since there will likely be increases to wages and/or associated costs to train existing employees on a new set of skills. Plainly, it is reasonable to anticipate that efforts to attract and retain skilled laborers have the ability to increase costs in the immediate future as contractors and subcontractors look to absorb these increases.

Andrew Richards, Esq. and Jason Lange are partners at Kaufman Dolowich Voluck, Woodbury, N.Y.