Construction labor shortage update for 2023 (and what to do about it)

The construction labor market has garnered attention in recent years. For most residential construction companies, it has meant project delays, rising labor costs and dissatisfied clients.

In this 2023 labor market update, we’re shedding light on this ongoing issue, including analyzing recent construction labor shortage statistics as well as actionable tips for your business to use to help avoid the pitfalls of an understaffed workforce.

What is the construction labor shortage, and when did it start?

Labor shortages in construction refer to a situation where there’s a lack of construction workers in the industry.

In recent years, the construction industry has experienced record gaps in the workforce. Although impossible to definitively pinpoint, there are several contributing factors to the shortage.

1. Pandemic-related employee turnover: At the start of the pandemic, most industries experienced a sharp increase in the number of unemployed persons per job opening, as industries laid off workers and tried to reduce expenses. As the pandemic progressed, this ratio quickly inverted, with job opening rates growing to over 4.0. This could have been explained by a mix of public safety concerns and government funding making it not immediately necessary for unemployed persons to reenter the workforce, resulting in the phenomenon now known as “The Great Resignation.”
2. Economic conditions: Even prior to the start of the pandemic in 2020, the construction industry experienced ebbs and flows with the labor force. During the 2008 financial crisis, for example, many construction workers worldwide lost their jobs. As the industry gradually recovered from the recession that followed, many construction companies experienced a shortage of workers with available skill sets to meet market demands. Construction housing predictions estimate home buyer demand will remain high, meaning market demands will likely continue to outpace labor availability.
3. Aging workforce: It’s estimated that nearly 25% of construction workers are over the age of 25. This means that, as the workforce continues to age, the already-tight labor market may find itself even more depleted. Broadly speaking, different generations have different values and objectives, making it critical for your construction company to prioritize the top wants and needs from the potential labor pool and use these factors to help you position your company as an employer of choice.
4. An increase of competing industries: In recent times, more industries are emerging as competing employers for your workforce. In 2022, for example, Amazon made waves in the job market after committing a $1 billion investment in training and wage access programs, along with increasing hourly wages. These kinds of incentives drew away workers from a number of industries, even though their skills may not have been directly transferrable.
5. Industry perception: The construction industry often faces challenges in attracting workers due to the perception of its physical demands, dangerous conditions and lack of career growth opportunities. In fact, research suggests 48% of surveyed 18- to 25-year-olds want less physically demanding jobs, citing opportunities with less physical demand – and greater flexibility – as a reason to look elsewhere for employment.

It’s important to be aware of these labor shortage triggers, as limited workforces can contribute to project delays and longer completion times, reduced quality of work, higher labor costs and lowered client satisfaction.

The current state of the skilled labor shortage in 2023

To understand opportunities and areas of potential concern in the labor market this year, let’s examine three key areas of construction workforce trends and how they can impact the current state of the skilled labor shortage.

Construction job openings

In 2022, the average job opening rate in the construction industry was 5.5, meaning there were over five job openings available for every 100 positions in the construction industry. As recently as April 2023, that rate decreased to 4.6. Although it may seem like the labor shortage is gradually improving, 2020 rates were closer to 3.0. This shows that the industry has still not recovered to pre-pandemic job opening rates.

It’s also important to consider the number of actual job openings in the industry when examining this number. From December 2022 to January 2023, the number of job openings decreased by more than 200,000 positions, without a noticeable increase in hire rates.

This suggests some companies slowed their hiring efforts, even amid the continued labor shortage. Since then, the number of open jobs has returned to between 300,000 and 400,000. Over the past 12 months, the residential construction industry has seen employment growth of 1.2%.

Construction hires and separations

Analyzing hire and separation rates in the construction industry can provide insight into labor demand, recruitment efforts, employee retention and satisfaction.

As recently as April 2023, hiring efforts increased by 128,000 over a two-month period. Over the same period, separations – which is defined by both voluntary and involuntary employee turnover – increased by 48,000. Considering job openings during that same time still increased by 54,000, labor demand remains high.

Understanding labor demand is an important step in aligning your workforce needs with current market conditions. When operating under a high-demand labor market, it’s important to implement targeted recruitment strategies, invest in training and professional development programs and examine workforce planning strategies to help ensure you have the right workers at the right time given the needs of your business.

Construction wages

As you examine the construction labor market, we’d be remiss if we didn’t talk about wages.

In the recent State of the Residential Construction Industry annual report, wage stagnation – combined with the rising cost of living – was cited as one of the biggest reasons for voluntary employee separations.

Wages in construction are rising. It’s been reported 72% of contractors increased base rates in 2022, with even more expanding benefits and bonuses. Average hourly earnings rose by 6.1% in construction from December 2021 to December 2022.

Although wages are rising, it’s important to consider how wage growth may be affecting your labor pool. Inflation over the same period fell from 7% to 6.5% but remained above the reported increase of base wage rates. This demonstrates a lack of wage growth, which could be a contributing factor to low interest from potential labor markets.

How are residential contractors impacted by the 2023 labor shortage?

You may be wondering what these insights mean for your business. The truth is residential construction contractors have been affected by recent worker shortages.

Increased labor costs

With a limited pool of available workers, residential contractors have faced rising labor costs as they explore how to hire construction workers amid increased competition. Labor shortages can drive up wages and salaries, squeezing profit margins and potentially leading to higher construction costs for clients.

Project delays

Labor shortages can cause project delays as contractors struggle to match their available workforce with project timelines. The limited availability of skilled workers can extend construction schedules, leading to potential financial penalties, strained client relationships and disruptions to project planning.

Increased workload

With a smaller labor force, residential contractors often face increased workloads. The existing workforce may need to take on additional tasks and responsibilities, potentially leading to fatigue, burnout, increased overtime and reduced productivity. This can further compound project delays and impact the overall quality of work.

Poor workmanship

The labor shortage can result in a scarcity of experienced workers. As contractors turn to less-experienced or inadequately trained workers, the quality of work may decrease, negatively impacting the reputation of your business.

Increased builder risk

Contractors may experience an increase in builder risk, especially as labor shortages can make maintaining safety standards and regulatory compliance more difficult. With a reduced workforce, there may be less capacity to focus on safety protocols and training, potentially leading to an elevated risk of workplace accidents and legal liabilities.

Decreased client satisfaction

Ultimately, the labor shortage can lead to decreased client satisfaction. Project delays, increased costs, compromised workmanship and other related challenges can directly affect a client’s experience. This, in turn, may damage the reputation of your business and impact your ability to secure future projects.

Understanding workforce shortages are resulting in these measurable consequences can help you prioritize different strategies for overcoming your own business’ labor gaps.

Tips to navigate the construction labor shortage in 2023

It’s not all doom and gloom – builders can stay ahead of these hurdles. It’s all about being smart and strategic – plus using the right resources to help forecast and mitigate construction challenges before they happen. We’re here to help with the following actionable tips.

Explore new technologies

Efficiency-driving construction software can help reduce your need for additional overhead. For example, construction project management software can streamline communication, document management and task management. By digitizing and automating processes, these tools can reduce manual labor requirements. This can help in situations where you are working with limited resources but still need to deliver on contract requirements to meet deadlines.

Work with a staffing partner

Staffing agencies typically have access to a wider network of skilled workers and can help bridge the labor gap. By outsourcing some of the processes of recruiting top talent to a staffing partner, businesses can efficiently find qualified workers to meet their project needs.

Be mindful of insurance fees

As labor costs increase, it’s important to review insurance policies and fees to ensure they are still competitive. This may involve reassessing liability insurance coverage, exploring alternative insurance providers or negotiating fees with subcontractors.

Invest in training programs

Develop in-house training programs to upskill existing employees and explore talent diversity. By investing in training and development initiatives, construction businesses can enhance the skill sets of their workforce, address specific labor shortages in certain trades and retain employees by providing opportunities for career growth. This might look like apprenticeship or mentorship programs, which can also help keep your existing workforce engaged.

Manage overtime

While overtime can be necessary during labor shortages, it’s essential to manage it effectively to avoid worker burnout and maintain productivity – while also managing your labor costs. Implement overtime policies so you have a clear guideline for what overtime is allowed per project. These policies should detail compensation and other expectations.

Value transparency

Foster open communication and transparency with employees, subcontractors and clients. Clearly communicate the challenges posed by the labor shortage, using this knowledge to set realistic expectations on a project-by-project basis. This can help you avoid some pitfalls of labor shortages, even if the problem is long-term.

Navigating the labor shortage with Buildertrend: Your first steps

Buildertrend’s unique, efficiency-driving features can help you manage what you can control in a labor shortage – while minimizing the risk of what you can’t. It’s more than just a construction software – it’s a tool you can leverage to navigate the labor shortage. Here’s how.

1. Streamlined communication: Buildertrend provides a solution for seamless communication between team members, subcontractors and clients. Utilize the messaging and collaboration features to enhance communication and ensure everyone stays informed and aligned. By reducing communication gaps and delays, you can mitigate the impact of labor shortages and keep projects on track.
2. Efficient project planning and scheduling: Utilize Buildertrend’s project planning and scheduling tools to optimize resource allocation and maximize productivity. Create detailed project timelines, assign tasks and track progress in real time. By effectively managing schedules and resources, you can mitigate delays caused by labor shortages and ensure smooth project execution.
3. Simplified document management: Buildertrend enables you to store, organize and share project documents securely. By digitizing and centralizing documents such as blueprints, contracts and permits, you eliminate the need for manual paperwork and minimize the risk of information loss. This streamlines processes, reduces administrative tasks and enhances overall efficiency.
4. Enhanced collaboration with subcontractors: Invite subcontractors to join specific projects, share project details and communicate effectively within Buildertrend’s portal. This promotes transparency, facilitates coordination and helps overcome labor shortages by leveraging the expertise and resources of reliable subcontractors.
5. Mobile access: Leverage Buildertrend’s mobile app to access critical project information and update progress directly from the job site. This eliminates the need for back-and-forth communication and streamlines on-site workflows. With instant access to project details, photos and documents, you can address issues promptly, make informed decisions and keep projects moving forward despite labor constraints.

Construction labor shortage FAQs

Get answers to the most common questions about the construction labor shortage.