Sometime in the not too distant future, FMI Corporation, a management consulting firm serving the construction industry, believes that construction labor is going to run short.
“The big thing is the macro economy,” says Mike Clancy, a senior consultant with FMI. “I’d say over the next couple of years we’re looking at very slow growth.”
Once the economy rebounds and a brisk pace of construction activity resumes, Clancy says, the U.S. labor pool will be thin. By his reckoning, 29 percent of the people once employed in construction have left the trade. They’re simply gone. They’re being retrained for jobs in other industries, are pursuing education for alternate careers or are seeking work in their home countries to which they’ve returned.
The ripple effects of a construction labor shortage, Clancy believes, will be with us for some time.
“The folks that are hanging [wallboard] today are your foremen of 2020 and your superintendents of 2030,” says Clancy. “If we don’t have them in the industry now, we will struggle as an industry in the future.”
Is drywall and ceiling construction heading for a labor shortage? Will drywall firms need to raise their compensation packages for entry-level workers, mid-level supervisors and top management in the future? This article will consider these and other questions.
166,900 Drywall Jobs by 2020
According to the U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook, the prospects for drywall and ceiling workers seeking jobs will improve. From 2010 to 2020, as construction activity rebounds, employment of drywall and ceiling installers and tapers will grow 29 percent to a projected 166,900 jobs nationwide, the government says.
This job growth breaks out to 35 percent employment growth for drywall tapers (22,900 jobs in 2010 to 30,900 projected jobs in 2020) and 28 percent employment growth for installers (106,700 jobs in 2010 to 136,000 projected jobs in 2020).
The most recent government data on total construction industry employment comes from the May 2010 “Occupational Employment Statistics” report. The OES survey includes 1.2 million business establishments and is conducted in six semiannual panels over a three-year period. Respondents are asked to list the occupation and wage range for each of their employees. Data from the six most recent panels are used each year to provide wage and employment estimates for about 800 occupations by area and industry.
According to “Occupational Employment Statistics,” the total of all construction-related occupations in May 2010 was 4.9 million, down from a peak of 6.5 million jobs in May 2006. Employment in 40 of the 46 construction occupations decreased over this time, with some occupations declining by half. Employment declines were often steeper among the lower-paid construction helper jobs.
$21.12/Hour Wage
The same OES report pegged U.S. average wages for construction jobs in May 2010 at $21.12 per hour, about the same as the all-occupations average of $21.35 per hour. Between May 2006 and May 2010, average hourly wages grew 2.7 percent per year for construction occupations.
But the rate of growth in wages for construction had been trailing the growth in wages for all occupations in the United States. From May 2006 to May 2010, hourly wages on average for all U.S. jobs grew at a rate of 3.2 percent per year.
$33.38/Hour Total Cost to Employ Wages are just one part of the labor story. How much does it cost employers to compensate their workers? The “Employer Costs for Employee Compensation” report, a product of the National Compensation Survey and published by the U.S. Bureau of Labor, measures employer costs for wages, salaries and employee benefits for non-farm private and state and local government workers. The most recent data (for June 2012, released in September 2012), shows the cost to employ workers per hour was $28.80. The same cost per employee per hour worked in the construction industry was $33.38, which is higher than the average U.S. worker.
The $28.80 breaks out into two components. Wages and salaries averaged $20.27 per hour worked and accounted for 70.4 percent of these costs. Benefits averaged $8.52 and accounted for the remaining 29.6 percent of employer costs. The figures are higher for construction workers: $33.38 per hour worked includes $23.17 in wages and $10.21 in total benefits.
$1.80/Hour Retirement Benefits
Employer retirement and savings benefits costs for full-time workers in private industry averaged $1.30 per hour worked (3.9 percent of total compensation), significantly higher than 23 cents for part-time workers (1.5 percent of total compensation).
Retirement and savings benefits costs for full-time workers in management, professional and related occupations averaged $2.26 per hour worked, compared to 71 cents for part-time workers.
Employer retirement and savings benefits costs for construction workers were higher than other occupational groups at $1.80 per hour worked. This represented 5.4 percent of construction workers total cost to employ, again citing the June 2012 statistics published in September.
See the chart on page 40 for more information on benefits costs per employee per hour worked.
$38.79/Hour Total Cost for Union Shops
According to “Employer Costs for Employee Compensation,” the bargaining unit status of workers shows a higher cost per employer for union workers’ wages and total benefits.
For example, in June 2012 the employer costs of union workers’ wages and salaries averaged $23.35 per hour worked. The cost of total benefits was $15.44 for union workers.
Retirement and savings benefits costs were higher, both in amount and as a proportion of total compensation, for union workers ($2.89 and 7.4 percent of total compensation) than for non-union workers (83 cents and 3.0 percent of total compensation). Defined benefit plan costs were significantly higher for union workers ($2.11 and 5.4 percent of total compensation) than for non-union workers (26 cents and 0.9 percent of total compensation). Defined contribution costs for union workers were higher (78 cents) compared to non-union workers (57 cents).
John Rapaport, general manager at Component Assembly Systems, Inc., Pelham, N.Y., says that the labor market forecast depends on the type of drywall and ceiling operation. He says union operations have a different prospect going forward than do open, non-union shops.
For example, Rapaport sees the union world as it exists today as a more difficult one to create large-scale upward mobility. While Rapaport says that union labor at the right price is better, more productive and safer than the labor derived from open shops, he believes that union work will continue to shrink due to its high wage and benefit packages.
“Simply put, union labor is not ‘right sized’ to grow,” Rapaport says. “Unions will always leave a limited pool, especially in the lower ranks, to fill the spots of journeymen who become supers. Unions restrict entry, especially in bad times, so when things pick up there could be gaps.”
Most unionized drywall and ceiling companies will have enough foremen and superintendants to run their operations, Rapaport says. However, he sees the ranks of workers just below those levels being less plentiful as they once were.
“This, indeed, may create less capable union field leadership in the future,” he says.
$27.76/Hour Total Cost for Non-Union Shops
According to “Employer Costs for Employee Compensation,” in June 2012 the employer costs of non-union workers’ wages and salaries averaged $19.95 per hour worked versus $23.35 for union employees. The cost of total benefits was $7.81 for non-union workers, almost half the cost of benefits for union workers.
Rapaport sees open-shop (non-union) drywall and ceiling companies thriving in the field for the foreseeable future. Their lower price structures and more flexible work rules will give them greater freedom to grow their labor pools and bring in new employees at all levels. He says that many large, non-union firms have their own training programs, and they can hire easily during good times. Although construction is down right now, these firms can quickly ramp up to staff new projects.
“We know there are plenty of people in the workforce who want these jobs,” Rapaport says.
As for project managers, Rapaport sees no problem hiring and promoting from within to fill those positions. He believes the engineering schools are currently producing plenty of graduates who, in time, will gain experience to fill these roles.
$100/Hour Wages and Benefits by 2017
So, will drywall and ceiling firms have to pay more in order to attract qualified workers? Yes and no.
“The contracts have really escalated, so it is a very good, fair wage,” says Lee R. Zaretzky, president of Ronsco, Inc. in New York, N.Y. “In essence our new contract, by the time it terms out in 2017, has a carpenter working 35 to 40 hours a week between wages and benefits close to $100 an hour.”
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There could be a shortage of project management and superintendents as people age-out and retire.
“It’s up to smart companies to foresee and look at the demographics of their company and their current work crew, from apprentices to foreman, to see that they are being utilized properly,” Zaretzky says. “You need a developmental program, a formal system in place so that you don’t get caught.”
Zaretzky says that companies are wise to have solid training programs regardless of market conditions being good or bad.
“I truly feel you’ve always got to have your hand on the pulse of that and constantly upgrade skills,” he says.
Labor Shortage: For Real?
The government data suggest that drywall and ceiling construction may run short on workers this decade. That could be true if business activity returns and FMI’s figure of a 29 percent labor pool vacuum pans out.
But not all industry observers agree. Zaretzky, for example, does not foresee a shortage in general labor available for wall and ceiling construction.
“We are still at 30 to 40 percent unemployment [in the construction industry],” Zaretzky says. “There would have to be an awful lot of people aging-out or retiring, but then that would mean there would be a lot of opportunities.”
Zaretzky believes that the labor and technical colleges in his area, along with the union’s apprentice program, are all “very good at recognizing future shortages and increasing recruits to fulfill the needs.” From a labor standpoint, he’s not worried.
However, he does see strain placed on the availability of crew leaders going forward. The aging and retirement of Baby Boomers is creating a vacuum, he says.
“A lot of these guys are looking to get out as soon as they can to collect their pensions, while there still is a solid union pension,” Zaretzky says.
Competition: It’s Real
One the whole, labor is on the radar of many drywall and ceiling firms. But the more immediate concern isn’t competing for workers but competing for work.
“There are way too many contractors bidding for not enough jobs,” Zaretzky says. “Owners and general contractors see that and basically keep trying to sell a number until they get the number they want. Before, there used to be three to five bidders, now there are seven to 10. They keep going around and around until they find someone hungry enough to do it below cost.”
The competitive bidding situation has skewed the labor market.
“An unfortunate truth is that the erosion of the union market is being facilitated by union tradespeople unable to find work. They are working for non-union contractors, doing what they have to do to feed their families,” Zaretzky says. “So, non-union contractors have caught up on quality. They’ve caught up on schedule. They’ve caught up on safety halfway, because they have labor trained by the building trades.”
Zaretzky says some competition is “paying 25 cents on the dollar for the cost of labor.” He says that the market share for these companies is “increasing as we continue to bleed.”
So then, labor shortage possibilities withstanding, a healthy economy is the fundamental hope and need, the key to staffing and the cost of labor going forward.
“The economy needs to get going,” Zaretzky says, “and even then we’re still going to be a year or two behind the recovery.”
Mark L. Johnson is an industry writer and marketing communications consultant.
