Construction hiring to decrease, labor wages to increase in 2006

Contractors added 88,000 workers during the first quarter, with most hires occurring in January and February; only 7,000 workers were hired in March. Still, construction job gains were three times greater than job gains experienced by the rest of the U.S. economy.

During the next year, construction job growth is expected to drop to about 40,000–50,000 per quarter, on average, as builders and subcontractors reduce staff.

Looking outside the construction industry, at service industries for example, there is evidence that inflation generated by three years of strong economic expansion is beginning to affect wages. Average hourly earnings growth accelerated to a 3.7% annual rate across the whole economy during the first quarter. But that gain was only 0.8% for construction wages, temporarily below its recent 2% annual pace. Contractors will have to worry about inflation affecting wages for skilled workers, but they are substantially insulated from the growing pressure to increase wages for unskilled and semi-skilled workers.

In March, there were 820,000 unemployed construction workers (an 8.5% unemployment rate), according to the Bureau of Labor Statistics. A relatively large share of construction workers are illegal immigrants, compared to other industries. The Pew Hispanic Center estimates 14% overall, but for many low-skill jobs typically subcontracted to small contractors, the figure is closer to 25–30%.

Contractor access to a large pool of unskilled, often illegal workers will not keep inflation pressure from affecting wages for skilled workers, who are already in short supply in many regions and trades. The expected higher wages will be adding to nonresidential building costs and heavy/engineering work in the second half of 2006.