New Entrants into Oregon’s Construction Industry Helping to Ease the Labor Shortage

by Damon Runberg

June 27, 2017

Oregon’s current economic expansion caught up to the construction industry as the supply of available residential, commercial, and industrial space declined. The largest driver in the uptick of construction demand is Oregon’s housing market where private housing permits have increased 46 percent over the past five years (U.S. Census Bureau). The result? Rapid hiring across the construction industry.

In the past two years, the construction industry added around 16,000 jobs – a whopping 20 percent increase – making it Oregon’s fastest growing industry sector. The construction industry accounts for around 5 percent of all nonfarm jobs in Oregon, however the industry accounted for greater than 17 percent of all nonfarm jobs added in Oregon over the past two years. A combination of rapid job growth and skilled workers leaving the industry during the recession led to a labor shortage in the building trades. Fast growing communities, such as Portland, Bend, Salem, and Eugene, have all experienced difficulty finding construction workers to keep pace with demand. Construction employers identified 88 percent of their job vacancies as difficult to fill, the highest rate of all major industry sectors in Oregon. The occupation in Oregon with the most difficult-to-fill vacancies was construction laborers with over 1,500 vacancies identified as “difficult to fill” in 2016.
In the midst of this construction labor shortage and continued hiring demand, many are wondering where current construction workers are coming from. Are these in-migrants into the state? Are they leaving other industries lured by relatively high wages and consistent work? We analyzed wage records of Oregon’s 2016 construction workers and followed those workers back several years to see how their wages, hours, and industry of employment changed during this current expansion.

In-migration and New Entrants Major Sources of Construction Workers

In 2016, there were around 118,700 individuals whose primary industry of employment was construction. The median hourly wage for these workers was $23.73 an hour, around 45 percent higher than the statewide median for all industries (~$16.25). This is one of Oregon’s largest middle wage industries with over 44 percent of construction workers making between $20 and $40 an hour. These construction jobs provide an important opportunity for those with lower educational attainment and less formal work experience to make a “living wage.”

If we track those 118,700 workers back in time, we see a significant inflow of construction labor into Oregon’s labor market. Nearly 25 percent (29,000) of the 2016 construction workers were not reporting wages in Oregon as recently as 2014. This means that these folks either recently moved to the state or they are new entrants into the state’s labor market. New entrants are primarily young adults and recent graduates, but in some cases these were previously discouraged or marginally attached workers. The inflow of new workers is even larger if you look back to 2011 (five years prior) where around 40 percent of the 2016 construction workers were not in the state’s payroll system.
We cannot dig much further into those workers who did not show up in the payroll system previously. All we know is that the construction workforce is being boosted by in-migrants and new entrants into the labor force.

The Allure of Today’s Construction Industry

We can dig deeper into those construction workers who have been employed in Oregon for the past several years. Have those workers moved into a construction job from a different industry? Have they seen an increase in their wages? Have they begun working more hours as building activity increased?

Let’s tackle that first question. Are today’s construction workers long-time construction laborers? Our universe is 2016 construction workers who have been employed in Oregon over the past several years. Astonishingly, only around 77 percent of today’s construction workers were employed for a construction business as their primary job back in 2014. To put it another way, around 21,000 of today’s construction workers were working in Oregon, but in a different industry just two years ago. Around 5 percent of today’s construction workers were working in the professional and business services sector. A seemingly strange move, however these could have been office, administrative, or higher level business folks who took a similar role for a construction firm. A notable share of today’s construction workers were working in manufacturing (3%), retail trade (3%), leisure and hospitality (3%), and natural resources (2%) back in 2014.

A large number of job opportunities are the obvious reason why there has been significant movement of workers into the construction industry; however pay is also a major consideration. Those who were working in construction in both 2014 and 2016 saw their inflation-adjusted median wage rise $2.84, roughly an 11 percent increase in real wages over two years – double the pace of wage growth for all workers in Oregon records in both 2014 and 2016. However, many of those moving from other industries into a construction job saw their median wage rise by a much higher rate. Around 2,500 of today’s construction workers were employed in a leisure and hospitality business in 2014. These folks were working in hotels, restaurants, and recreation businesses, such as gyms, golf courses, or ski resorts. Wages in this industry are notably low as many of the jobs are entry level, part-time, and seasonal. The 2,500 construction workers who were working in leisure and hospitality back in 2014 saw their median hourly wage rise from $10.34 to $15.39, a whopping 49 percent growth in real wages in just two years.

Clearly, higher paying employment opportunities are drawing workers to the construction industry. In fact, we see the same story for today’s construction workers who had been working in the retail sector in 2014 with their median wage rising 45 percent in just two years.

As demand for construction labor increases and supply of labor dwindles, construction businesses are responding by offering more hours to their current workforce. Median hours worked increased by around 4 percent over the past two years for those employed as a construction worker in both 2014 and 2016. That is nearly the equivalent of working an additional two full-time weeks a year. As with wages, it seems many folks were drawn to the construction industry for more consistent work. For instance, those who were working in leisure and hospitality in 2014, but found work in construction by 2016 saw their median hours worked jump by 48 percent, or the equivalent of an additional 7.5 full-time weeks a year. Those moving from seasonal industries saw the largest jump in hours worked, however those who came from less seasonal industries, such as professional and business services and transportation, also saw a significant increase in their hours worked.

The labor shortage in Oregon’s construction industry is real, but the market is responding as expected. Increasing wages and more consistent hours are attracting workers from other industries, as well as new entrants into Oregon’s labor market. There is a strong positive relationship between building permits and construction employment; as permits rise we see a gain in construction jobs. Over the past year, we have begun to see the growth in building permits slow, likely a welcome sign for those construction businesses struggling to find workers.

 


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