A persistent labor shortfall

Today’s labor mismatch has multiple root causes, from baby boomers leaving the workforce to record quit rates as workers reevaluate priorities to a shrinking pipeline of new construction workers amid stalled training and low net migration.But whatever the reasons, the net result is the same: there are too few workers for the jobs currently available, and certainly not enough for the jobs expected to be created in the years ahead.In the current constrained environment, industry wages are growing at the fastest rates since the run-up to the 2008 financial crisind demand is unlikely to materially slacken irrespective of economic conditions, in large part because private- and public-sector infrastructure investment is locking in multiyear capital outlays (Exhibit 1). These outlays are less sensitive to cyclical pressures than the residential and business-to-consumer commercial sectors (such as retail and hospitality).

Getting granular: Insights by sector, occupation, and geography

The disconnect between jobs available today—and those set to be created in the years ahead—and the number of qualified people to fill them is significant. But when we looked beneath those top-level numbers, we found the strain varies by geography, sector, and occupation (for more on our methodology, see sidebar, “Model scope and assumptions”).

The challenges introduced by the BIL and their possible solutions require a local, nuanced perspective. Industries that hold their collective breath to see what happens do so at their peril, because this is unlikely to be a transient, near-term issue. BIL spending is expected to start in 2023 and persist through 2033, with funding peaking across asset classes in 2027 and 2028. For example, in the year of peak demand, we estimate a shortfall attributable to the BIL of more than 160,000 workers in the contractor and subcontractor sector, 145,000 workers in the materials sector, and 40,000 workers in the engineering and technical-services sector. Again, that’s a shortfall just for the year in which demand peaks, not over the lifetime of the BIL’s effect.

In addition, the risks of the labor shortage are more acute in the short term. In the run-up to those peaks in 2027 and 2028, every year in which the market fails to meet demand for labor creates a backlog that will both extend and delay the peak while driving up costs and eroding the BIL’s purchasing power. At the same time, BIL investment is occurring alongside other public-sector outlays (such as the Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 [CHIPS Act] and the Inflation Reduction Act) and as the private sector makes generational bets on the future of the economy. In that sense, our modeling should be treated as a lower bound of the collective strain facing the construction value chain over the next decade.

Read the full report here