Construction jobs decrease, wage gains increase

Construction employment in the U.S. market has been declining for six months and will continue to decline for another six months. However, job losses are not yet substantial enough to stop gains in construction wage rates, which have been accelerating for nearly two years.

Construction employment peaked last September at 7.725 million jobs and will decline by about 100,000 jobs through late 2007. By the end of 2008, those 100,000 jobs will be added back as a result of a slowly recovering housing market—but the jobs will be entirely in the new home construction sector. Additional construction jobs will be added through 2008 as a result of all the other sectors continuing to hire.

At the peak of the last building cycle in 2000, construction hourly wage gains reached an annual rate of 4.2%, then a steep decline in construction spending pushed wage gains down to less than a 1% pace in the first half of 2005.

During the last six months, construction wages have been increasing at a 4.6% pace. This swing in wage gains was more pronounced in construction than elsewhere in the economy, and reflects a recent decrease in the number of males aged 20-24, as well as the failure of construction trade unions and contractors to recruit enough apprentices for skilled jobs.

Wage gains are expected to peak at about a 5% pace in mid-2007, but remain above 4% well into next year. Wages have risen less and will continue to rise less for unskilled workers where employers have access to a larger labor pool.

But the current spot shortages and labor cost premiums for skilled nonresidential construction workers will get worse through next year, and those contractors underestimating labor costs will be taking as big a risk as if they were underestimating materials cost.