The Hammering of the U.S. Construction Worker

Tomorrow we get another look at the health of the U.S. labor market.

We have posted several pieces about how employment in the construction sector has failed to recover.  Ironically, this is the one sector, which historically, has been most sensitive to monetary policy and interest rates.

The data illustrated in Chart 1 shows that total construction jobs have fallen back to 1996 levels and as a percent of total nonfarm payrolls are now at a point not seen since 1946.  We were surprised at just how small the construction sector is in terms of overall employment,  4.1 percent of total nonfarm payrolls, or 5.5 million construction jobs of the 133 million employed.

Another interesting side note in Chart 1 is that construction as percent of total employment peaked in 1956 at 5.9 percent, the year President Eisenhower’s National Interstate and Defense Highways Act was enacted.   At the time it was the largest public works project in American history.

Chart 2 illustrates the composition of the construction labor force.  Almost 63 percent of all construction jobs are specialty trade contractors, which include carpenters, framers, electricians, and plumbers.

Note only about 15 percent of construction workers, 822K, are employed in heavy and civil engineering projects, such as highway and dam construction.   This could be one reason why the stimulus has failed to stimulate jobs (see Chart 4).

There just aren’t enough workers to build bridges to nowhere or Chinese-like ghost cities in order to make a dent in the overall unemployment rate.   Furthermore, our friends in the industry tell us it is not easy to hire in this sector.

Finally, Chart 3 illustrates just how painful this recession and recovery has been for the construction worker.  On an annual basis, the construction sector has lost a net 2.2 million jobs since the end of 2006 and, though the massive job losses has been stemmed,  has yet to show any signs of meaningful recovery.

Our sense, which is also validated by many studies, is that the official data does not capture the true pain on the downside and may underestimate a recovery due to what takes place in the underground economy.    This is from a report from the Washington state legislature,

The Legislature found “that some current estimates place the percentage of unreported employment in Washington State’s construction industry at between twenty percent and fifty percent, although solid data on this phenomenon is not readily available in Washington.”

Let’s hope QE∞ can lead to some positive prints in construction payrolls and maybe we will get one tomorrow.

But wasn’t the negative real interest rates (i.e., irresponsible monetary policy) of the last decade largely or partly responsible for the housing bubble and its subsequent spectacular bust?   Folks, there has to be better way to generate a more stable and sustainable aggregate demand.    Wash, rinse, repeat.

(click here if charts are not observable)

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3 Responses to The Hammering of the U.S. Construction Worker

  1. knogknebronson says:

    Regarding the “Underground Economy & Unreported Employment”, I wonder how much bartering is going on as a way to surive, avoid income tax, qualify for entitlement welfare programs, work and still collect SSI disibility, workmans compensation disability insurance, ETC….
    I suspect it is HUGE. ?

  2. The University of U’s–Undocumented, Unreported, Underground, … Ugly

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