By Mark Buckshon
for Indiana Construction News
Construction economist Ed Zarenski believes that the much-reported construction labour shortage may indicate significant productivity challenges as well as possible ‘over-hiring’ by contractors, rather than a fundamental labour shortage.
What is the difference between spending (or revenue) and volume?
Zarenski, a retired Gilbane Building Company manager, publishes the Construction Analytics blog from his home near Providence, Rhode Island. His blog won the 2019 Construction Marketing Ideas Best Construction Blog competition, beating more than 25 competitors. (I oversee the contest, which includes a combination of popular voting and independent judging, as part of the blog which I’ve administered for the past decade.)
In his research, Zarenski suggests that construction business managers are hiring and spending based on revenue numbers, more than actual building volume – and these numbers are growing because of cost inflation NOT more than actual work volume.
He writes that for the two years in 2017 and 2018, total construction nation-wide in the US posted a revenue increase of 9.8 per cent, but inflation was 9.3 per cent.
Volume after adjusting for inflation increased 0.3%, he writes. During that period construction jobs increased by 7.6 per cent.
Taken over a longer period, “since January 2011, construction jobs have increased 36 per cent but construction volume is up only 25 per cent. Jobs have been growing faster than the real volume of work.”
Zarenski then breaks out the number by sector, and the discrepancy between job creation and actual business volume is even more jarring for non-residential buildings and non-building civil.
- Nonresidential Buildings: Revenue +5.9% Volume -3.1% Jobs +8.2%
- Non-building Civil: Revenue +4.0% Volume -3.4% Jobs +10.0%
- Residential Buildings: Revenue +17.0% Volume +5.5% Jobs +8.2%
Similar to a pattern that occurred in the pre-recession spending boom, jobs growth does not align with volume growth but is more closely matched to revenue growth. Overall, for the last two years, construction jobs growth far outpaces construction volume growth, he writes.
In the nonresidential sectors, while revenue was positive, after spending is adjusted for inflation, real volume was down 3 per cent to 4 per cent. Yet jobs increased 8 per cent to 10 per cent.
Residential spending (revenue) was up 17 per cent, but after inflation real volume was up only 5.5 per cent. Residential jobs increased 8 per cent. “If we look at residential since 2011 we see persistent growth in volume greater than jobs,” Zarenski writes. But all residential jobs are not captured.
“When we look at nonresidential buildings we see jobs growth far exceeds volume growth,” Zarenski says. “However, there are some jobs related to residential work that are captured in the nonresidential jobs number, any work on high-rise residential buildings performed by contractors whose company is generally classified as nonresidential, particularly structural, and it is impossible to break out those jobs.”
“It is difficult to square the consistent jobs growth in excess of volume growth with the long ongoing narrative of jobs shortages,” he observes. “I suppose it could be argued that it is a ‘skilled’ jobs shortage, a lack of workers with the needed experience. But we would have to look back to the period 2000-2004 to find a time when jobs growth was balanced with volume growth.”
More on Construction Jobs vs. Volume can be found at https://edzarenski.com.