A recent CNBC Reality Check column cast doubt on the widespread yet false theory that there is currently a “labor shortage” in the construction industry. As workers advocates have argued in recent years, simple economics disprove the presence “labor shortage” theory. A 2014 paper from economist Dale Berman of Michigan State University explained that labor shortages produce upward pressure on wages and limited employment opportunities, neither of which are present in the construction industry as a whole. Instead, job growth in construction is up while wages are stagnant.
The latest evidence that the “labor shortage” theory is inaccurate comes from a recent analysis of the housing market by Goldman Sachs:
“Our analysis of payroll growth and wage inflation data suggests that labor shortages may not be to blame for the mediocre level of housing activity. We find that, on the one hand, the construction sector has experienced the largest job growth over the past year.”
The report doubled down on the aforementioned theory regarding wages:
“Economics 101 would suggest that, if labor shortages did in fact exist, upward pressure on wages would be more pronounced and payroll growth would be anemic. Therefore, the evidence from the industry-level employment and wage data does not support the existence of labor shortages in the construction sector.”
Bureau of Labor Statistics numbers show that while construction has led all other growth sectors at 5 percent, average hourly earnings for construction workers have only risen 2.2 percent in the past year, on par with the national average.
Goldman Sachs suggests that certain regulations and land prices near urban areas are more likely the cause of a sluggish housing market, with a deviation in the western United States where many construction workers who lost their jobs during the economic crash have yet to return to work. In the west, the average age of construction workers has risen in recent years, so there is a need to hire younger workers. However, the problem is not that there is a shortage of young workers looking for jobs, there simply aren’t enough companies willing to pay decent wages to attract talent, Goldman concludes.
The Spring is traditionally a strong time for the American housing market. However, home construction weakened in March and homebuilder confidence has not budged in three months. In past years this trend was incorrectly blamed on an alleged “labor shortage.” Now, even Goldman Sachs, a traditionally industry-minded outfit, admits that the “labor shortage” theory makes little sense and low wages are to blame.
