The US construction sector seems set for a jobs boom. The US Bipartisan Infrastructure Law projects $550 billion of new infrastructure investment over the next decade, which our modeling suggests could create 3.2 million new jobs across the nonresidential construction value chain. That’s approximately a 30 percent increase in the overall US nonresidential construction workforce, which would mean 300,000 to 600,000 new workers entering the sector—every year.
That said, a rise in rates could bring the economy and housing investment to a stop. Even if infrastructure remains strong, building construction could suffer. In addition, the industry is already struggling to attract and retain the workers it needs. Between December 2019 and 2021, construction wages grew by 7.9 percent, reflecting intense competition for employees.1 And the prospect of higher pay and better working conditions is tempting experienced personnel away from construction and into sectors such as transportation and warehousing, where wages grew by 12.6 percent over the same period.
No end in sight
The labor supply imbalance in construction has multiple root causes, and some are likely to persist. For example, the pandemic accelerated the retirement of many in the baby boomer generation, with an estimated 3.2 million leaving the US workforce in 2020. According to the American Opportunity Survey, among those who are unemployed, concerns about physical health, mental health, and lack of childcare remain the dominant impediments preventing reentry into the workforce. Record job openings and quit rates highlight employees’ growing emphasis on feeling valued by their organization, on supportive management, and on flexibility and autonomy at work. And the pipeline of new construction workers is not flowing as freely as it once did: training programs were slow to restart operations after the pandemic, and falling migration rates have made it more difficult to attract the international workforce that has been an important source of talent for engineering, design, and contracting activities.
Impact on projects
The interconnected nature of the construction value chain means the labor mismatch generates knock-on effects across the project life cycle and supply chain. By late 2021, project owners reported that up to 25 percent of material deliveries to sites were either late or incomplete. In project execution, the combination of higher hourly rates, premiums and incentives, and overtime payments resulted in overall labor costs that were as much as double prepandemic levels. Meanwhile, difficulty accessing skilled and experienced people led some owners to report project delays related to issues with the quality and productivity of on-site work.
The industry knows from recent experience that skills shortages can hit productivity hard. In the shale-oil boom, the productivity of some tasks fell by 40 percent or more during construction peaks (exhibit). Overall productivity declined by about 40 percent per year when labor was in short supply, forcing owners to extend project timelines by 20 to 25 percent. The impact of a long-term, nationwide labor mismatch might be even more severe than the shale industry’s experience, given that oil companies were able to attract new workers from around the country.
Getting back into balance
To avoid a decade or more of rising costs, falling productivity, and ever-increasing project delays, companies in the industry should consider thoughtful actions now.
Those actions could address three components of the challenge. First, companies could do everything possible to maximize productivity through measures aimed at improving efficiency across the value chain. Second, they could expand the pool of available labor by doubling down on accessing diverse talent and working harder to retain the employees already in their organization. Finally, they could consider making labor a strategic priority, giving it attention from senior leadership within companies.
Improving construction productivity
Rigorous control of project scope, design simplification, and standardization can improve productivity long before work starts on the ground. Increasing the use of off-site and modular construction, for example, could allow projects to capture multiple benefits, including accelerated design cycles; the greater productivity associated with industrialized, factory floor manufacturing techniques; automation; and less time spent on site.
During project delivery, smarter execution management, enabled by digital technologies and analytics techniques, could drive better, faster decision making. Real-time data collection, for example, gives project managers earlier, more detailed insights about progress, allowing them to intervene more effectively to maintain productivity and keep projects on track. And lean construction is a proven way to drive significant and sustainable productivity.
To ensure access to the skills they need, construction sector companies can accelerate the onboarding of recruits, boost retention by revisiting what employees want beyond wages, and invest more in developing their pipelines of future workers.
In the near term, employers could prioritize the review of job applications and reduce the number of steps in both the interview and the onboarding process. Competitive wages are now table stakes. Research on attrition in the postpandemic workplace has shown that employees are placing more emphasis on autonomy, flexibility, support, and upward mobility. In the medium term, both the public and private sectors could look to reduce hiring timelines and shift to a skills-based approach when hiring.
In the longer term, the construction industry can consider a new approach to talent attraction, development, and retention. Talent acquisition could begin early through partnerships with educational institutions, including universities, colleges, and high schools. Companies could also look more widely for potential recruits by considering individuals who have taken alternative educational paths, such as technical degrees or hands-on experience. The Rework America Alliance, a Markle-led coalition in which McKinsey is a partner, illustrates the importance of skills-based—rather than credential-based— hiring. Moreover, identifying and attracting talent from outside the traditional paths used by the construction industry could also help it to increase the diversity of its workforce. Today, 88 percent of the sector’s workforce is White, and 89 percent is male.2
Looking at labor through a strategic lens
Labor and skills shortages have the potential to slow growth and erode profitability across the construction value chain. For C-suites, there’s no other single issue that could protect against significant cost erosion. Companies could consider establishing a systematic talent acquisition and retention program that is led by a C-level executive and is a core part of the CEO agenda. That program could be tasked with building a robust fact base focused on current and emerging labor availability gaps, as well as with identifying a bold set of initiatives that address labor-related issues across the value chain. Leadership will likely need to be increasingly present in the field and on the jobsite too, celebrating and recognizing top talent throughout the organization.
The labor challenge extends well beyond corporate boundaries. Since the successful delivery of a project could be jeopardized by labor shortages in a single value chain participant, project owners and contractors may want to adapt the structure of project relationships and contracts. Moving away from traditional contracting methods to collaborative contracts, for example, allows participants to share market risks and opportunities as a project evolves.
The US construction sector is poised to revitalize, replace, and expand the country’s infrastructure. Done right, this will power inclusive growth and set up the economy for success in the 21st century. To do so, the sector will need to address its labor challenges. This calls for the application of a diverse set of tools and approaches to create better jobs, get the most out of its people, and optimize agility and collaboration across the value chain.
This article is part of Global Infrastructure Initiative’s Voices on Infrastructure.