Construction wage rates are now rising faster than at the peak of the last building cycle in early 2000. Furthermore, wage gains are forecast to accelerate a little more into the fall before the impact of 100,000 layoffs of construction workers since last September begins to cool wage inflation. The job losses are entirely in new home construction. All other construction sectors will continue to hire workers through 2008.
Construction hourly wage gains reached an annual rate of 4.2% in the second half of 2000 at the peak of the last building cycle. Then a steep decline in construction spending pushed wage gains down to a less than 1% pace in the first half of 2005. Construction wages have been increasing at a 4.6% pace in the last six months. This swing in wage gains was more pronounced in construction than in the rest of the economy. This reflects the recent dip in the size of the male 20- to 24-year-old age group, as well as the failure of construction trade unions and contractors to recruit enough apprentices for skilled jobs in the last few years.
The initial recovery in the housing market later this year will add the 100,000 jobs back by the end of next year. Wage gains are expected to peak at about a 5% pace in mid-2007, but remain above 4% well into next year.
Wages have not risen as much for unskilled workers, nor will they, because employers have access to a larger labor pool. However, the current spot shortages and labor cost premiums for skilled non-residential construction workers will get worse through next year. For many contractors, underestimating labor costs will be as big a risk as underestimating material costs.
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