The labour market recovery has left the construction sector behind.
When the housing bubble burst before the 2008 financial crisis, many workers in the construction sector lost their jobs.
Demand for new houses plummeted, and since then, the housing recovery has been slow.
In a note, Michell Meyer at Bank of America Merril Lynch wonders whether the continued slowdown in homebuilding is because there’s a low supply of construction workers, or whether the slowdown in construction jobs growth is because of weak housing demand.
It turns out that its the former, because people are still wary of taking construction jobs, with Meyer citing a New York Fed study that makes this case.
NY Fed economist Andrew Paciorek notes that construction employment fell nearly 25% between 2006 and 2010, from about 11.5 million jobs to about 9 million. That was about half of all the jobs lost in that period, economy-wide. But construction employment has only recovered about a third of its losses.
It’s puzzling because construction jobs are relatively high-paying (although average wage growth has been slow) and they don’t require a college degree.
So, where are the construction workers?
“The first obvious place to look for formerly employed construction workers is among the ranks of the unemployed,” Paciorek notes.
“Figure 2 shows that the decline in construction employment after 2007 was accompanied by a large increase in unemployed workers who reported that their most recent job was in construction. But while construction employment remains far below its 2006 level, construction unemployment has more or less returned to normal. This pattern indicates that, on net, most former construction workers must have flowed out of the sector entirely.”
Here’s the chart Paciorek is referencing.
But Meyer notes that the medium-term solution to the shortage of construction workers could come from the energy sector.
Thousands of people have been laid off in the last few months because of the oil crash, and Meyer notes that they might be willing to accept lower wages because they recently became unemployed.