with Jim Rogers

Higher Wages Are Not the Answer to Our Shrinking Workforce

As the construction industry continues to lament over the lack of workers, we continue to see statements about rising pay being the answer to attracting a bigger workforce. But is this really what is needed? Are low wages really the barrier we are facing to attracting workers? I don’t think so. In fact, I think that raising hourly pay to attract more workers is nothing more than putting a Band-Aid on a wound that needs to be cleaned and sutured.

Pay in the construction industry has generally always been good (https://www.bls.gov/oes/current/oes472061.htm). In my opinion, our challenge of attracting a larger workforce is a much more complicated issue. Our problem lies more with the issues of respect and image. These issues are fueled by the fragmented structure of the construction industry. This is a structure that is not going away, so it is important to first acknowledge and accept that structure.

Fragmentation in the Construction Industry

It’s not difficult to do a search on fragmentation in the construction industry and come up with articles that discuss this issue. To understand the discussion and the concern, one only needs to understand how construction actually works. Traditionally, we start with a project owner who hires a design team to design and a general contractor to build. But the design requires the input of many specialists, and the build requires the use of many skilled craft people. 

On the building side, general contractor are always touted as the companies building the projects, but they almost never have the actual capacity to “build” without hiring trade contractors (also known as subcontractors). These are the companies that actually employ the skilled craft workers. Yes, there are plenty of general contractors out there that directly employ one or more skilled trades; however, they rarely implement these trades in all of their projects, and even when they do, it is just a trade or two. This leaves the bulk of the actual construction on a project to be performed by dozens of different trade contractors. Some large, some small, some in-between. This is the source of the so-called fragmentation in the construction industry. 

Some suggest that we need to solve this issue by reducing fragmentation and embracing vertical integration, like a factory. I think this is a mistake. It is not practical, and before this becomes an even lengthier discussion, let’s just say that, as an industry, we got here for a reason. The structure of general contractors and trade contractors is necessary, it works for many different reasons, and it is here to stay. Look no further than the now defunct Katerra (https://www.failory.com/cemetery/katerra) if you want to see what happens when you try to vertically integrate while ignoring the realities of the construction industry. 

Fragmentation Leads to Disrespect 

While I do not believe we need to address the so-called fragmentation of the construction industry, I do believe that this industry structure contributes to a lack of respect for the very people we rely on to build our structures, the people we need on every project that ever breaks ground: the skilled craft people. Why is this? 

Quite simply, it’s because managing a bunch of people who go out into the field to build complex things is really hard. These companies have to constantly manage and balance profits with productivity, quality, and safety. They have to figure out what training their people need, and how to deliver that training. They have to figure out how to get the right information and instructions into their hands, every day, on every project. They have to figure out how to keep them moving, while making sure they don’t get overworked and burned out. They have to constantly assess their people’s needs and attempt to fill those needs while maintaining profits. And they have to do all this with a workforce that is constantly moving and shifting. A workforce that rarely “comes to the office.” A workforce that reports to a jobsite that is under the control of someone else (the general contractor), and a jobsite that is populated with many different trade contractors.

This is where our image and respect problems begin. 

First, we have a jobsite that is (or is supposed to be) under the direct control of that general contractor. Each trade contractor cannot establish necessary work-site elements such as break areas, restrooms, sanitary facilities, or eating areas. Each trade contractor cannot go around mitigating hazards created by every single other trade as they each progress in their work. Each trade contractor cannot spend the necessary amount of time to clean up after all the other trades, and each trade contractor cannot be left to fight for workspace in a given area when too many trades are stacked up against each other. Oftentimes, even the logistics of moving and staging materials are at least partially out of the hands of the trade contractor. 

Not only are trade contractors faced with these problems, but they are also faced with problems like:

• constant training requirements
• productivity issues caused by things that are both in their control and out of their control
• juggling schedules from multiple jobsites, which are controlled by different general contractors
• general issues that arise when managing a diverse group of individuals who all need to work as a team

And let’s not forget about things like liability insurance, workers compensation, wages, and the out-of-control health insurance premiums.

Unfortunately, the person who often suffers in all of this is the individual worker who is out there at the jobsite. It is hard to take care of these workers, and it is easy to forget about them out there on the site, away from the home office. The problem is, they are the ones we need to build our projects: our roads, bridges, buildings, schools. We need these individuals, and that need is not going to subside in our lifetime (or, at least, not in my lifetime). Yes, we will automate, we will incorporate robotics, we will even move some productivity off-site. But we will still rely on those people, those individuals, those skilled craft people. 

This is the root of our industry’s problems. Quality, productivity, schedule, cost, safety…

If our people do not have health insurance, are not sure what they are going to be paid this week, do not have a place to take needed breaks, have to use some of the nastiest “sanitary” facilities you can find, are constantly fighting for a safe and productive space with other trades people, do not have the right training and equipment to get the job done correctly, and do not even have a decent place to eat lunch, how motivated do you think they will be? How motivated do you think young people will be to join our industry? Do you think they will overlook these things if you give them another couple of dollars per hour? How long do you think that will last? 

Solving the Problem

So, what do we do? Again, some would suggest vertical integration, where large companies directly hire all the trade contractors, doing away with the fragmentation. But again, look to the fate of Katerra (https://www.failory.com/cemetery/katerra) if you want an example of how this has worked out in the past. It is not the answer. Some suggest that it is the small trade contractors that are the issue, and that larger companies can better manage all the issues. There are many reasons this isn’t the answer, either, because there are many reasons we need the small trade contractors.

So, what do we do? The answer is simple, but the execution is difficult. 

Quite simply, we need to start building more respect for workers in varying roles, and we need to start owning our company’s responsibilities. Here is where I think we need to start:

General Contractors

GC’s are the controlling entity, and they need to own that responsibility. Every person who steps onto your work site needs a clean, safe, uncluttered workspace. They need sanitary areas to take breaks, eat, and use the restroom. The role of providing such spaces belongs to the GC. It makes no sense to leave it to each trade contractor because that would be a huge duplication of efforts, and failing to address these issues shows a complete lack of respect for the individuals needed to build the projects.

Embracing theories of productivity like Lean can help you achieve the goal of respecting people while improving everything else on your project, from throughput to safety. 

Trade Contractors

You manage people. You need to own that. If you don’t want to manage people, you are probably in the wrong business. You cannot solve all of your management problems by throwing them back at your individual workers. I constantly see this done by companies who decide that “piece-work” is the answer to all their problems. The thought being that if you pay everyone in the field by the “piece,” instead of by the hour, none of these issues will matter anymore. They are no longer your problems. 

While that last statement may be true in the short term, make no mistake: this is the absolute bane of our industry. It is a substantial contributing factor to our diminishing workforce. You cannot solve your management issues by dumping them into the hands of your workforce. It does not make the problems go away. It simply shifts them onto a group that is even less equipped to handle them. In the short term, yes, it seems great. As an owner or manager, I instantly make my productivity problems disappear. I know exactly what I am charging, and I know exactly what I am going to pay. Who cares if the workers have issues in the field? Who cares if they couldn’t get anything done because the materials were not there? Who cares if the other trade contractors were in their way, or if the job was not ready?

Believe me, those individual workers care. Maybe not immediately. But in the long term, they will care. And then they will leave the industry, and our workforce will continue to shrink. They will tell their stories to others, to their friends and their children, and we will continue to find it difficult to attract people to the industry. 

The answer to our shrinking workforce is not higher wages. It is more respect.