How is labor shortage impacting the construction industry?

JULIE RAGSDALE: On this podcast, we will discuss the labor shortages facing the construction industry and what will be done to address that issue. Pre-COVID, Adam, the construction industry was already facing labor shortages. COVID intensified the problem. Are you seeing any relief to the shortages, or at least a sign the issue is being turned around?

ADAM HALL: Well, it's a complex picture globally, of course. But generally, we still see a lot of pressure on labor in the construction industry. And there are a range of factors that are relating to that. There's been a lot of increases in construction-related work for economies that used infrastructure and housing investment as a way to sustain economic growth during COVID and post-COVID. And in the US and in Australia, those infrastructure investment spikes are continuing. And so we expect to see very strong demand for labor in the construction industry to continue even in environments where the broader economy is starting to slow and that may over time impact new housing construction. But I think a lot of the infrastructure construction which is government-funded or more government-funded will potentially continue for quite some time.

So if we look at the Australian numbers, which I'm most familiar sitting here in Melbourne, Australia, we're seeing record high numbers of employment growth in construction. In fact, we've had seven consecutive quarters of growth in construction demand since mid-2021. And so the Australian Bureau of Statistics, March quarter statistics show that the construction trades are the sector with the lowest fill rates for jobs. And so it is still extremely hard to find people for construction roles in the Australian market. And we understand that's certainly similarly the case in North America.

JULIE RAGSDALE: Yes, definitely what we're seeing. Per the Bureau of Labor Statistics, in the US, construction has reached 99% of pre-COVID numbers, but it definitely does not feel like that. With all the increased construction work, large amount of infrastructure work, we definitely don't feel like that's the case.

ADAM HALL: Yeah. And the World Economic Forum, when it looked at a labor market update, it reported that building and related trades were among the most highly experienced job shortages across the EU and that it's predicting some of the highest net growth from 2023 to 2027 in various jobs in the sector, including engineering, project management, building frame and trades, heavy vehicle drivers, looking for a growth of 1 to 2 million jobs in the sector. So it looks like sustained demand, and that has been coupled with supply challenges into the sector for labor for some time.

JULIE RAGSDALE: So it appears there are many issues feeding into the cause of labor shortage. What do you see is the root cause?

ADAM HALL: Well, as with all complex problems, there. Isn't really one root cause I think there's multiple factors which have similarities across countries but all have some nuances. Probably one of the biggest factors I think that's globally experienced is the generational shift and retiring baby boomers and a lack of replacement of younger workers coming into the industry, and even just generally, in lack of replacements in some countries altogether for baby boomers retiring because of lower birth rates. So that has been a challenge.

I think we've also seen some shift, potentially shift away from a construction industry roles during COVID. People chose alternatives, looked at ways of-- we saw this across a lot of industries, people making choices about what work they did. And the low unemployment environment has meant that people can be picky, picky in terms of what work they do, what organizations they work for. And so that has been a significant factor.

And then I think we're also seeing the influence of shifting immigration patterns as well, and immigration restrictions in some markets that meaning it's much harder to get roles that were filled typically by immigrant workers, both in some specialist trades, but also in general labor roles. We've seen reports of that in the United States. But also, it's prevalent in Australia where the skilled migration was shut down during COVID, and that has had a significant impact on the construction sector, as well as other sectors which relied on those labor flows.

JULIE RAGSDALE: Do you think the impact is greater on the smaller contractor or the larger contractors?

ADAM HALL: I think overall, it's probably greater on smaller contractors. Typically, where we see these macro shifts or challenges in the market, larger contractors have more capacity to absorb costs that flow on from looking to pay higher wages, expand benefit opportunities, potentially even look at investment in things that they need to do to attract more workers. They're also potentially more diversified. And so pressure in one sector or one kind of work can be offset possibly by drawing workers from other regions or other markets if they're global players. And so they have a little bit more capacity to respond to those environments. But they also potentially have larger projects at risk from labor shortage. So the cost of delays for some of the very large projects because of labor shortages might be very substantial to larger contractors. And depending on the contract arrangements, the consequences in terms of penalties that they might pay or payments that they might not receive for meeting deadlines could also be very significant. So yes, probably larger contractors have more capacity to withstand the changes, but they're not immune from those impacts either.

JULIE RAGSDALE: Right. So construction companies recognize the labor shortages, and they are beginning to take action. What have you seen contractors do that has proven to be successful?

ADAM HALL: Yeah, I think one of the first things has been through COVID, this was a general shift to a stronger focus on employee needs and employee well-being needs in particular. And so for organizations that had been able to do that and sustain that focus, that is very attractive to employees now. So again, it's a very different picture, depending on what market you're in globally.

But in all markets, we're seeing employees really value a emphasis on employee well-being and create a flexibility. So notwithstanding many of the construction roles can't be done remotely, they have to be done on site. We've seen interesting thinking and programs developed by some of the construction organizations around trying to enhance flexibility for their workers as a way to make those roles more attractive.

So it's all about trying to draw people to your organization and draw people to the sector by presenting a more attractive picture of working in the sector. It's historically had a reputation as dangerous, dirty, very male-centric work. And that means that it's a very narrow talent pool that organizations have been pursuing. And when labor gets tight, we need to try and think about how can we expand the pool that we're drawing from?

And so that's really the strategies that we're seeing organizations adopt. So looking for ways to expand the talent pool they can draw on, maybe trying to retain older workers by staging retirements, kind of transition to retirement programs, pairing older workers up with young workers to accelerate mentoring into those roles, trying to reach out into high schools or markets where we might be able to draw people into the industry early on, and increase the number of people coming into the industry. And then I think it is just around doing a better job of retaining people in the organization through better culture manager capability for supervision, making things a better experience, better wages, better benefits.

And so certainly, one of the big challenges in the Australian market, which we see, is a very high dropout rate of apprentices in the trades. And there's a whole range of reasons for that. But one of them is the pay is particularly poor in the Australian market relative to other things. And often the treatment by more senior tradespeople is not great.

And so people, with those two things combined, don't want to stick around for that experience. Even though we now see that in many roles, particularly the skilled trades, electricians, plumbers, perhaps carpenters or less extent but other kinds of skilled trades, welders, boilermakers, the demand for those skills is very high and the salaries can end up being quite substantial. So markets like Australia, where the mining industry also looks for a lot of those trades and we'll pay very high salaries for those trades, it can be a very attractive proposition.

And construction, where you might be able to work more consistently closer to your home rather than flying to a remote mining site, should be a very attractive alternative for those roles. The challenge we often see is competing on salaries, where the mining industry pays very high salaries relative to all other sectors, and that can have a real challenge. The counterpoint that we've seen from construction clients is really trying to focus on what they can offer, which is greater flexibility, greater well-being, investment, and some good use and clever use of incentives around whether it's project completion bonuses, or whether it's quality performance bonuses for performance. All of those things can be part of the role about how to make it more attractive to more people to join the industry.

JULIE RAGSDALE: So only 11% of the construction workplace is made up of women per the Bureau of Labor Statistics. It makes sense to grow this percentage. Why do you think there's such low participation by women, and how can we work to increase this percentage?

ADAM HALL: It's a great question. And it is one of the key challenges for the industry, not alone, about how to create a more diverse and inclusive environment that attracts people to the industry. And when labor is short, of course, this becomes a critical issue. But it shouldn't be the driver of everything. Because having more diverse people in the industry and in your organization, coupled with an inclusive culture, means you get access to all of those different ideas about the way to do things from a day to day perspective, the way to grow your business. And we've seen evidence from some of our clients here in the mining sector that the most diverse and inclusive teams also have the best safety and production performance. And so there's really clear evidence that actually these things are very good for your business in and of themselves.

So how do you go about increasing the number of women? Well, firstly, we start again at schools and making the effort to portray the roles in the industry and the industry itself as a place that has opportunity for women, and that is inclusive of women. Now, none of that will work unless the culture inside organizations is actually inclusive.

And so there is work for organizations to do to make sure that they are providing a safe and inclusive workplace. And that is importantly driven by a tone from the leaders in these organizations, the tone from the top, owners, leaders, project managers around making sure that they create the right environment for women. And then importantly, from the organization perspective, be a small contractor or a large contractor around backing that up with the right systems, processes to ensure that when women come onto the site that they have all the right things in order to do their job properly.

And so it is pretty amazing that occasionally, we still need to talk to organizations about making sure that they've got the basics right, that they have suitable PPE for women that fits. They actually have made sure that the physical security arrangements on site if women are leaving, arriving early, parking a long way away or have a commute that takes them through somewhere that's not well lit, that on site, you have appropriate break and change facilities. And if you're really progressive that you even accommodate things like changing rooms and feeding rooms for women if that's needed for them.

And so those kind of seem like small and obvious things, but it is not infrequently that we talk to organizations where these things are not put in place appropriately before women come on site. And then of course, that leads to a very unsatisfactory outcome. And so kind of go to all the effort of trying to attract more women into your organization and then not providing the appropriate work environment for them, and of course, they don't stay. So that's really important.

But inclusion and the work that you do to create a more inclusive environment for women actually makes a more inclusive environment for everyone. The evidence is quite clear that the more inclusive we make workplaces, the better it is for everybody because everyone has more opportunity to have their voice heard, everyone has more opportunity to be treated equally on the merits of their performance. And so that is a net benefit for everyone. So someone, like I will say, notwithstanding the labor challenges, focusing on enhancing diversity and creating inclusive environment is a really important thing for organizations to do to ensure the health and sustainability of their business more broadly.

JULIE RAGSDALE: It definitely sounds like employers are trying new things to increase their employee retention. It sounds as if they're giving attention now to the psychological health and mental well-being of the employees while they're at work. What are you seeing in this area that you see as helpful?

ADAM HALL: Yeah, this is a big area. And so the shift we have seen from a focus on physical safety and looking really at only the factors that address an employee's physical safety to looking at employee healthand recognizing that actually doing things to improve the physical health and well-being of employees is good for the business. And whether that's driving down health premiums or creating less absence at work and less sick leave to now seeing that actually investing in the total well-being of an employee, their psychological health, their social connectedness, their financial well-being, and their physical health is also beneficial for the organization as it creates employees who are more physically healthy, less stressed by the challenges of their life, whether it be those financial or social, and that creates more productive employees.

And so we're seeing organizations put in place much more holistic programs around supporting employee well-being. That doesn't mean they're taking on all the responsibility. But it is about a shared responsibility to help employees make good decisions, give them access to resources through the organizations, particularly buying power if you're a larger organization to create economy of scale.

And so in North America and other markets with a strong employee benefits market, that can be through that mechanism, group insurances, other kinds of mechanisms. But even in markets like Australia where there isn't a need for company-provided health insurance, there's a significant investment in particularly enhancements in reducing psychological, psychosocial hazards and risks. And that is coming partly because governments are passing legislation in some markets that require it.

So in Mexico, for an example, where there is required assessment of a psychosocial hazards, there's a new global standard ISO 45003 that organizations are looking at to understand the psychosocial hazards that employees might experience. And then in Australia, we've recently had a law passed that requires a positive duty from directors around psychosocial hazards. So this becomes a directors and officers' issue that the directors of the company need to assure themselves that they're doing everything possible to reduce the risks of psychological harm to their employees.

And so all of these things coming together starting really provide a drive for employers to invest in creating an environment that is psychologically safe for employees that minimizes hazards and risks both from a physical and psychosocial perspective. And so that is a good thing because we actually know that investment in these things up front has payoffs for, again, productivity and reductions in absence. And in markets, again, like Australia and others where there's premiums paid to worker's compensation schemes, the cost of worker's compensation for psychological claims far exceeds the cost from physical health claims because someone might suffer a psychological injury in their 40s and be unable to work ever again.

And so you are then paying the cost of that claim for potentially 20 years. And physical injuries that have that kind of occurrence are relatively rare, but the rate of increase in psychological injuries that have that kind of profile is growing exponentially. And the insurers will tell you that they are likely to overtake the cost of physical injuries very soon.

So we're seeing a lot of things that organizations do to address that. So training mental health first aid is in their organizations to be a first point of reference for both staff and employees who have challenges. They're investing in manager capability more broadly to recognize the signs of someone who's really struggling. And they're looking at a whole range of employee benefits to support that, whether that's insurances, whether that's different kinds of leave, but also offering different kinds of health and wellbeing benefits that provide real value to the employee.

And I think importantly also looking at how do we reduce the source of stresses and risks in the organization. So we don't want to make this only about individual resilience or coping after something hashappened. But it's actually about taking proactive, preventative actions to identify hazards and risks and then trying to change the likelihood that they will occur through the way you run your organization.

JULIE RAGSDALE: Great. Sounds like some big strides are being made in improving the employee environment. Adam, thank you for contributing to this episode and for sharing your perspective on such an important topic. Thank you to everybody who listened, and thank you for joining the WTW Construction Blueprints podcast. We'll talk to you on the next one.

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