Demand Drives Wage Growth in the Construction Industry

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Wage growth in the construction industry has exceeded growth levels in all other industries in the third quarter of 2016, per the Q3 2016 ADP Research Institute® Workforce Vitality Report (WVR). This 7.2 percent wage growth in Q3 continues a three-year positive wage trajectory. Although there is a shortage of skilled labor, that has driven demand for workers and has only put more pressure on employers to continue raising wages.

Let's take a look at what's driving this demand.

More Households Have Better Access to Credit

We've come a long way since the implosion of the U.S. housing market in 2008. Access to credit has loosened substantially, enabling more people the ability to purchase homes. According to the U.S. Census Bureau, American new home construction is showing promise— privately-owned housing starts in October 2016 were at a seasonally-adjusted annual rate of 1.2 million. Although many new homes are coming to market, housing supply continues to lag behind demand, according to the Urban Institute. In other words, the construction business is on the rise and will likely continue its trend.

Businesses Are Expanding

As employment numbers continue to improve nationally, many businesses are looking to expand current facilities or build new ones. The health services sector is one example. The National Center of Policy Analysis reports that health services employment continues to grow while health service organizations are looking to expand facilities and construct additional facilities.

Increased employment often brings a boost in construction, with many employers expanding to accommodate new employees. Additionally, the communities in which they build often see a halo effect from expanded economic activity due to a larger employment population. It should be no surprise that, in the current climate of growing employment, Dodge Data & Analytics reports increased growth in commercial and institutional construction.

Green Construction Leads the Way

Green construction is leading the way in construction wage growth. The green building industry is outpacing overall construction growth in the U.S. in terms of employment and compensation, according to the Bureau of Labor Statistics (BLS). By 2018, the U.S. Green Building Council the council predicts more than three million jobs and $190 billion in labor earnings will come from green construction. This growth is due in large part to the reductions in operating cost that organizations find in energy efficient buildings.

Increased Demand Means Increased Wages

Taking a broader view, all of this increased demand exerts upward pressure on wages. As demand for construction increases, so does demand for skilled construction workers. An increased desire for workers with specialized skills drives up compensation, contributing to the construction industry's continued wage growth.

Even though there have been a few monthly declines in employment in the construction industry over the past year, per the ADP National Employment Report, a labor shortage in skilled construction workers has caused an increase in wages, hours and in-house training according to Construction Dive. Together, they will continue to produce wage growth for the construction industry.

This situation in construction holds true when these factors are present in other industries. Businesses competing for employees in a tight labor market need to be willing to differentiate themselves among candidates by providing higher pay or hours. Another option is to be ready and willing to provide unskilled candidates the type of training that turns them into stronger employees.