The Skilled Labor Shortage: Implications for Construction Businesses

The current labor shortage has far-reaching implications for worker safety and construction quality, which could adversely impact a company’s bottom line if investments are not made to address the issue.
By Keith Maciejewski
May 13, 2020

The construction industry is facing one of the most significant labor shortages it's ever experienced. Many construction companies report inadequate labor to meet their demand. This labor shortage has far-reaching implications for worker safety and construction quality—which could adversely impact a company’s bottom line, if investments are not made to address the issue.

What’s causing the labor gap?

There are two underlying trends driving this phenomena.

  1. More experienced workers have either not returned to the industry after the Great Recession, or are now retiring as they’ve reached the conclusion of their careers.
  2. The construction industry has long struggled to attract new, younger workers to the industry, and this problem has only worsened as the broader economy boomed. As a result, construction firms must compete with other industries, such as healthcare, technology and engineering, for young talent.

The potential impact to construction firms

One area that can be dramatically affected by the shortage of skilled labor is worker safety. According to the U.S. Chamber of Commerce Commercial Construction Index, 80% of contractors are highly concerned about the safety risk caused by a lack of skilled workers at their jobsites. Rightfully so, as the U.S. Bureau of Labor and Statistics data shows that 34.9% of new, untrained workers in the construction industry are injured during their first year on the job.

However, another factor many construction company owners may not consider is the impact of the lack of skilled trade workers, including project managers and supervisors, on productivity and construction quality. One overseas study examined how inexperienced project managers lead to ineffective management strategies in the early stages of the project, and ultimately costly delays and poor construction quality. In fact, the study noted increases in project costs and delays, as well as reduced construction quality, as the top three impacts of the skilled worker shortage. This last issue of poor construction quality, or quality of workmanship, is particularly noteworthy, given the cost, complexity and contentious nature of construction defect litigation in the United States.

How to attract a younger workforce

To attract younger workers, construction firms must consider how to compete with other booming industries. More competitive pay and benefits—such as 401K plans, educational support and reimbursement, or hassle-free paid time off—are just a few of the options firms should consider.

Recent data illustrates that workers will leave a firm for just 25 to 50 cents more per hour—particularly younger workers. To safeguard against this turnover, competitive salaries can be supplemented with 401K plans that include a company match and/or profit sharing. Performance bonuses also may be a way to reward lower-level employees for superior work, while simultaneously reaping benefits for the company in the form of more engaged employees and better quality work.

Additionally, companies should invest in partnerships with local high schools, community colleges or trade schools to establish a career pathway for young talent. This way, employers can begin to build skills and loyalties in potential future employees early on.

Most construction companies offer standard vacation time, but employees cite the hassle of taking vacation days—especially when a project is delayed or otherwise under pressure. Construction managers should consider offering paid time off (PTO), with no questions asked, as a way of supporting the employees’ need for work-life balance. Employers may also consider enhancing their vacation or PTO plans by implementing time-off increases based on number of years of service to the company.

Training and development is key to retaining employees

Attracting younger workers with competitive wages and benefits is just the beginning. Smart construction company owners know that retaining good employees is the key to growing their business. After all, some studies show that it costs six to nine months’ salary to attract and train new employees versus retaining existing ones, due to costs associated with separation (e.g., severance and unemployment), recruitment efforts and the costs of lost productivity. So, companies are best served by investing in new, younger workers as well as current workers through regular training programs.

One important area of training for employees is safety, including new employee orientation training programs as well as ongoing safety trainings such as OSHA 10-hour. It demonstrates to employees that the company cares about them and wants them go home safe at the end of each work day—and it can pay dividends to the company’s bottom line by reducing costly workplace injuries and accidents.

A short-term business cost for a long-term investment

Some construction company owners may raise concerns that a focus on attracting top talent, and actively investing in training, safety and quality programs, carries costs that adversely impact profits. While all of these options bear some costs, construction owners should consider the consequences of not taking action, such as not being able to attract enough new employees to successfully complete backlogged projects on time and with good quality. This can not only affect the firm’s top and bottom lines, but its brand and reputation as well. Also consider the costs of increased worker injuries that could result from a lack of safety training and new employee orientation programs. These worker injuries can spiral into increased workers’ compensation costs—which is already a significant line item cost for most construction firms.

Make the most of resources available from an insurance agency and carrier

Selecting an insurance agency and carrier that have expertise in the construction industry can yield significant reductions in the total cost of risk. Some agencies and many carriers have products, programs and staff that are dedicated to helping construction firms control their costs and improve their bottom lines through the implementation of programs such as:

  • Quality assurance programs;
  • Return-to-work programs;
  • Fleet safety programs;
  • Occupational Safety and Health Administration training;
  • Ergonomic and manual handling; and
  • Nurse case managers.

In an upcoming issue of CE This Week, an article will discuss what these programs look like and how construction firms can derive significant value and lower cost of risk by partnering with their agency and carrier.

by Keith Maciejewski
Keith Maciejewski has robust knowledge in underwriting and product offerings for the middle market. His expertise includes developing innovative, targeted solutions for commercial policyholders. To learn more about Amerisure’s comprehensive solutions for the construction industry, click here.

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