Talent Shortage Threatens to Limit Construction Industry Growth
November 15, 2019 by Mark Wolak, CPA, CGMA, CMA
Attracting and Retaining Employees Vital to Successful and Profitable Growth
With the U.S. economic expansion in its 11th year and the unemployment rate hitting a new five-decade low, it should bring nothing but optimism to not only the country’s economic competitiveness and financial markets, but to the overall health of the nation. But – as the southeastern Michigan construction industry is keenly aware – positive macroeconomic conditions don’t always directly translate to improvements in the cyclical building industry.
The five-county Metro Detroit region experienced $5.2 billion in new building construction in 2018 as reported by Dodge Data and Analytics. While this number has decreased somewhat due to a number of circumstances, including an anticipated economic downturn, increasing material costs and – most importantly to the local construction industry – a shortage of skilled trades and laborers, there still is healthy backlog of work to keep most contactors and trades busy in the near-term.
But what about the long-term? Experts fear that our region could see a hit to the industry due to another factor some businesses are not heavily weighting in their bottom line— retaining talent. For construction, it is becoming increasingly difficult to attract and retain new, qualified tradespeople, as there is a myriad of other career opportunities promising higher wages, better benefits, safer environments and less physically demanding work of a construction worker. And don’t forget the hidden costs…labor shortages could delay project deadlines, potentially causing financial penalties for not meeting deadlines, or a loss of early completion bonuses for participating firms.
Demand for Talent Continues to Rise
According to the U.S. Bureau of Labor Statistics, jobs for construction laborers will grow 12% by 2026, compared with an average of 7% for all other U.S. occupations. The bureau has reported that there were 263,000 open construction jobs in June, and the unemployment rate for experienced construction workers over 16 years old is just 3.2%, down from 7.0% only five years ago.
With these lofty projections and historically low unemployment rates, the time is now to start planning ahead, making sure you are doing everything possible within your company’s resources to ensure you are retaining your highly productive employees and attracting the brightest young adults to choose a career in the trades.
Here are three steps that may help guide you in planning and preparing for successful employee recruiting and retaining your top-level talent:
1. Financial Ramifications on Recruiting and Training Costs
High turnover is a budget killer. Companies should be keenly aware of all of the financial ramifications of recruiting and constant training of new workers. Recruiting costs vary, running anywhere from 10% to 30% of the starting salary, while training costs for entry-level positions vary from 15-20% of starting salary as well. In addition to the time/payroll tax savings and reduced unemployment claims, having consistent levels of high-quality, highly trained, loyal employees is paramount to the success of a well-run, profitable business.
Recruiting takes an enormous amount of time, money and effort, no matter the size of your business – large or small. The best return on investment a company can make is to attract and retain its workforce, since it is far less expensive to keep employees once they are in the door. Finding and retaining the best, most qualified employees is vital in today’s ultra-competitive workplace. For smaller companies, finding ways to successfully compete against the larger, big-budgeted firms is always a challenge.
This is where carving out a unique, sometimes creative benefit package personalized to employee needs plays a large role in attracting and retaining the best and brightest. Hiring a Michigan-based construction CPA firm can help you understand your actual and projected recruiting costs, and help put you on track for a profitable talent program.
Developing talent is of the utmost importance in today’s increasingly competitive job markets, not to mention the time and cost savings of not having to replace those employees. While a lot of companies give lip service to training, the smart ones are emphasizing the skilled trades apprenticeship programs, which have proven to increase the retention rate of its own workforce.
2. Apprenticeship Programs Help Retain Talent
Apprenticeship programs save money in the long run. While it may not seem so in the short run, companies are finding that an apprenticeship program for its employees is a proven solution for retaining skilled talent. With occupation choices including laborers, electricians, plumbers, rough and finish carpenters, these work-based curriculums can be integrated into any company’s existing training programs.
With a two- to five-year time commitment depending on the trade, employees have a rare opportunity to learn both in the classroom (about 20%) and in the field. This combination of practical and academic experience increases their knowledge of their particular trade, while at the same time developing specialized skills. And while those starting out in local apprenticeship programs start out making $12-$15 an hour, they can expect to make $28-$36 an hour upon completion of their respective program, not including benefits.
These programs offer a viable career path for youth or low-skilled adult workers, offering an immediate job, steadily rising wages and providing for a road map to a sustainable, successful career. From a company’s perspective, apprenticeship programs greatly assist in developing highly skilled employees, and have been shown to not only increase workers’ earnings, but also raise sponsoring companies’ productivity levels as well. More than 90% of apprentices that complete a formal training program are still employed with the same company nine months later.
Employers are the lifeblood of any apprenticeship program and must play an active role in sponsoring, providing jobs to apprentices, overseeing training development, providing first-hand learning and technical expertise and, of course, contributing financially to the program.
Tax credits are available for companies that support job growth. Business owners can get a break for giving what many would call high-risk employees a chance to earn a living. The Work Opportunity Tax Credit Program (WOTC) is for employers who will hire from “targeted groups of people that have experienced difficulty in securing employment in the past.” THE WOTC allows a maximum federal tax credit of $4,800 to $9,800 for disabled veterans, $4,000 for recipients of temporary assistance to needy families, and $2,400 for other targeted groups.
The construction industry and labor organizations have developed what serves as the “standard” model for other industries in terms of recruiting, developing and retaining your most highly productive employees. Some of the major benefits to a company include:
- reduced turnover and liability costs
- lower investment in recruiting costs
- higher productivity and higher profitability
- greater diversity of its workforce
- development of highly skilled employees
Such programs benefit both local and state workforce systems’ as well, providing a competitive, continual source of qualified, employable workers on an annual basis. For young adults, apprenticeships can create a promising, stable future, especially in today’s world of ever-rising college costs and escalating student debt. According to LendEDU, an online student loan marketplace, the average student loan debt at four-year Michigan colleges and universities averaged more than $30,000 in 2017. Along with the apprentices receiving immediate pay and raises as they meet certain benchmarks, formal apprenticeship programs become more appealing by the day.
Some of the many benefits that will put participants on a structured, upward career trajectory, include:
- wages earned while in school and training
- career advancement
- increased, in-demand skills
- little or no debt incurred for program enrollment
- national, portable credentials
3. Construction as a Viable Career Option
With the historically low unemployment rate, companies across all industries are coming up with creative ways to attract and retain not only recent college graduates but are finding themselves having to offer wages and benefits to long-time employees that would have been unheard of as recently as a decade ago. In the past, it was quite common for construction companies to employ two or three generations of the same family members…not so much anymore.
Millennials, for a variety of reasons, are looking elsewhere, as construction is not the next Google, Tesla or whatever the new, trendy company-of-the-day is. According to theundercoverrectuiter.com, of all of the 10 million people employed in the construction industry, only 9% are female, and most of those are primarily in administrative roles. The number in the field is even smaller, possibly due to a number of factors including sexual harassment, social perceptions and lack of adequate resources for women in a predominatly male-dominated industry. Also, with so few women in leadership roles, mentoring is also a big issue. The young women that do choose the industry as a career, often are at a lost once in the workforce when searching for guidance, advice or camaraderie. Therein lies a challenge.
Today, companies are having to offer all levels of employees an array of fully paid benefit packages just to keep up with peer companies in the industry, whereas in the past, it was customary for firms to offer approximately 25% to 75% of the employee’s health care benefits. We are now seeing 100% health care coverage and other benefits that were not typically covered such as:
- increased wages and benefits, some paying above union scale
- 401K, healthcare, profit sharing, etc.
- compensated time off
- job sharing/shifting of duties to ensure consistent full work weeks
These are only a few of the high-level benefit packages that are the norm today. Unheard of in the past, yes, but in today’s ultra-competitive marketplace, you need to stay ahead of the game or risk losing your brightest and best employees. While employers can expect to add an additional 10%-20% of salaries/wages paid to both salaried and hourly workers, it is now just the cost of doing business.
Even more importantly for the industry as a whole is the need to start marketing itself as an industry career of choice. It is crucial the industry take an earlier, proactive position in publicizing the construction trades as a viable career option that can be quite lucrative and rewarding. Gone are the days where people turned to construction when they couldn’t get into college or worked as a laborer because they didn’t know what to do until they found a “better” job.
Construction provides the potential for a job with high demand, high earnings potential and an opportunity for self-employment. Exposing high school students to the industry must be a top priority, not only for companies collectively, but for the industry as a whole. The workforce is becoming much older without a backfill of younger adults to fill the talent pipeline, and that is an increasingly important problem within the industry. There is a widespread unawareness of the wide-ranging benefits of pursuing a building trades career, and a lingering stigma attached to working in the construction industry.
Chief amongst the obstacles of attracting young adults to consider a construction career track include:
- high schools reducing or eliminating vocational classes altogether
- perception, often from parents, who have engrained into their kids that obtaining a college degree is necessary to have a “successful” career
- other viable career choices that require little or no strenuous physical activity
- overall negative stereotypes of the “old school” construction worker
- social interaction amongst peer groups
- a general lack of promotion or financial support from the industry to publicize the benefits of a construction career.
These are only a few hurdles that employers face in attracting the next generation to the construction industry. While the challenge seems great, employers must start to work more collaboratively to promote the industry as an attractive, vibrant and innovative place to work, especially amongst the younger generation.
Unfortunately, construction still operates mostly in a traditional, staid environment compared to other forward-thinking industries, and that is a major obstacle in attracting new, talented employees to the workforce. That mindset must change to just remain competitive with today’s ever-changing workplace. There are many employment options out there…the construction industry needs to take heed.
So, while it may seem like there are a lot of obstacles and mounting pressure for the industry to compete with the “glamour” industries to recruit and retain the next workforce generation, all is not lost. Working together, we must demonstrate that the industry can once again prove to be an exciting, viable option for young adults to pave a pathway to a prosperous and rewarding career. It is our job as an industry to ensure we do everything possible to make that happen.