Update: Contractors: Stay On Top of Lower Unemployment Trends

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The construction industry has been buoyed by favorable jobs data, including a drop in April to the industry's lowest unemployment figure in seven years. But a shortage of quality workers remains a concern and construction firm owners are advised to proceed with caution.

Overview of Construction Unemployment

The unemployment drop (click here for the figures) was especially encouraging for contractors. An analysis by the Associated General Contractors of America (AGCA), a highly respected trade association, indicated that the unemployment rate in construction dropped to its lowest April level in seven years.

Contractors added 22,000 workers to payrolls in the month, expanding industry-wide employment to six million, the highest since June, 2009. The group advised construction firms to expand training opportunities before the industry runs short of workers.

The group’s chief economist, Ken Simonson, observed that contractors have been adding to workers’ hours as well as hiring more employees. But, he added:

There is a limit to how much overtime workers can put in, and companies will be seeking to expand employment even faster if the volume of projects continues to grow… The huge drop in the number of unemployed former construction workers may make it harder to keep adding employees.

On the downside, the AGCA referenced a severe decline in secondary-level construction training in recent years, hampering efforts to find competent replacements for retiring workers. It continues to urge government officials to help ramp up training programs in the public sector.

Action Steps

Despite the recent cause for optimism, owners of construction firms must keep a firm grasp on reality. The figures on unemployment could just as easily backslide in the next few months. Keeping that in mind, here are five key principles to follow.

1. Find and retain good employees. Start off by hiring the best person for the job you’re looking to fill. Don’t contribute to unemployment problems by employing people without proper vetting and quickly discarding them.

When you identify and hire the “right person,” build loyalty by treating them right in return. Give your valued workers a chance to grow and prosper within your firm.

2. Think long-term. Don’t rush out and hire a dozen more people for your crew just because business is suddenly picking up. Recognize that there is often an ebb-and-flow within the construction industry.

Adopt a long-range plan that takes these swings into account and base it on realistic projections. Project it over several years, not just what you expect to happen next month.

3. Keep unemployment costs down. Generally, state unemployment rates are based on the firm’s unemployment history, factoring in payroll size, the amount paid into the system and the amount of unemployment benefits former employees have collected.

Manage your unemployment insurance rates by making good hiring decisions (see #1). Depending on state laws, liability may not kick in until a short waiting period has expired, so cut ties quickly, when warranted.

4. Monitor the economic news. In this day and age, you can’t blindly go about your business without paying attention to the rest of the world. Stay focused on relevant economic news — locally, nationally and even internationally — to see where the business indicators are leading.

Again, use this as a guideline, not the be-all and end-all, to facilitate a long-term plan.

5. Hope for the best and plan for the worst. Finally, to be on the safe side, be conservative in your projections. Anticipate what might happen if projects should dry up and work becomes scarce.

Develop contingency plans that can sustain you in the worst of times and allow you to prosper when the good times roll.

By The Numbers

AGCA noted that the construction industry is up 3.3 percent from the past year, having gained 189,000 workers, while the number of aggregate hours worked climbed an even more impressive 3.8 percent.

Residential building and specialty trade contractors added a combined total of 13,100 more workers in April and increased by 107,900, or 5 percent, over 12 months.

Nonresidential construction rose by 18,600 employees last month, reflecting a gain of 81,300 workers, or 2.2 percent, since April, 2013.

The unemployment rate for workers actively looking for jobs and last employed in the construction industry decreased from 13.2 percent a year to 9.4 percent in March.

Simonson commented that the unemployment rate for construction workers had declined by more than half in the four years dating back to April, 2010, when the rate spiked at 21.8 percent.

During this same time period, the number of unemployed workers who last worked in construction declined by 1.1 million, but industry employment increased by less than 450,000.

© 2014 Thomson Reuters/Tax & Accounting


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