Construction Labour Market: Analysis by Net Temps
Introduction
In this post, we’ll provide insights into the construction labour market to assist contractors make optimal decisions. Significant shortages of semi-skilled and skilled construction workers were widely reported and experienced across 2022 as construction output increased post-pandemic. An ONS government survey published in November 2022 reported that 36% of construction companies were struggling to find skilled workers to fill roles. Agencies likewise struggled to deliver against client demand during 2022 due to the shortage of available temporary workers throughout the year in the construction labour market.
Outside Factors
Temporary workforce shortages were artificially exacerbated by the loss of a significant number of European construction workers post-Brexit with 50,000 European construction workers leaving the UK in the 12 months from the end of 2019 to the end of 2020 according to Construction News. This figure is likely to have increased but recent Home Office changes have made it easier for European workers to return to the UK construction market after securing the right to work in the UK. The effects of this are slowly being noticed.
The construction labour market was further reduced by workers electing to take early retirement during the pandemic and by those exiting the construction sector to take up employment in other sectors of the economy, whilst little was done to attract new talent to the sector.
Construction Industry Analysis – Current Position
To date, worker shortages are yet to be felt due to the market slowdown which has been widely reported in the construction labour market since November 2022, when investor and consumer confidence took a hit following shockwaves from the mini-budget, and soaring interest rates on top of high inflation.
Glenigan reported a 47% decrease in project starts between November 2022 and January 2023 compared to the 3-month period immediately prior. Projects over £100m saw a 67% decrease in starts and projects under £100m a 20% decrease in starts.
The biggest impacted area of the market is currently the housing sector with the Purchasing Managers Index (PMI) score for December 2022 and January 2023 hitting 44.8 (a score below 50 is a contraction). This is its lowest level in 32 months and the lowest of any construction area. House buyer confidence has plummeted due to high mortgage rates and cost of living issues. Several local/ national house builders publicly reported downgrading building plans for the year as a result of weak sales and started to significantly reduce costs.
Construction Labour Market
Across the months of December and January, worker availability significantly improved in the construction labour market due to a noticeable decline in site work. Net Temps received more applicants per job advertised and more available worker enquiries than at any point in the previous 18 months.
However, this period of worker availability is not expected to last much longer given the recent increase in construction output. The latest construction PMI score of 54.6 for the month of February 2023 indicates that construction output increased for the first time since November, with the strongest score of 55.3 coming from the commercial sector (its highest monthly growth score since May 2022).
Housebuilding Market
Residential is still suffering the most compared to other sectors with a PMI score of 47.4 showing contraction for 3rd month in a row. A PMI survey of businesses in the month showed 46% of respondents were expecting rising activity and growth across the year as supply chain delays settled and material prices stabilised.
The outlook for construction in 2023 whilst not entirely clear has become more optimistic in recent weeks. We have seen a slow but steady increase in demand through February mirroring the above and to date, the availability of workers is keeping up with demand. Commercial build, office fit-out and civils are anticipated to fare relatively well, but the housing market is likely to struggle for some time.
Pressures on Pricing
The short-term improvement in worker availability has not led to any decrease in expectations or demands from workers with respect to pay. Inevitably, inflation and the subsequent cost of living crisis have sharpened workers’ expectations around pay and clients paying the most are invariably securing the best available workers and benefitting from improved retention helping them to deliver their projects.
Pre-Pandemic Factors
Pre-pandemic, a CSCS labourer could typically be secured in the Midlands by paying the national minimum wage (NMW). Market Forces currently in operation mean that this is no longer possible. With NMW set to increase in April by £0.92 per hour to £10.42 per hour, we anticipate worker pay expectations to increase and be applicable to a wider sector of workers. Skilled workers will wish to retain the pay gap between themselves and the unskilled in order to recognise their skills, experience, and qualifications.
Demand
We expect continued steady demand for workers through March and into April with progressively greater demand increasing thereafter through spring into summer. Worker availability in the short term should meet demand satisfactorily in most temporary skill sets but the shortage is expected to be felt heading into late spring as sites get progressively busier. At this point, given the reduced pool of available workers and the increase in client demand for labour, pay pressures are likely to rear their heads again.
Inflation
With inflation set to settle through the year and anticipated steadying in consumer costs, actual wage demands of workers associated with the cost of living are likely to stabilise post-April and hopefully for the rest of 2023. Further increases in pay expectations will be more demand/ worker shortage led as candidates realise, they can ask for and usually get more, to secure their preferred assignment. This assumes clients are prepared to pay to secure workers or potentially be left without.
Conclusion
Clearly, it will be important for both clients and labour suppliers to think of ways to differentiate themselves from their competitors on more than just pay in order to keep costs down as well as seeking ways to attract new talent to the industry and upskill existing workers.
For more advice on the construction labour market, call us at 0115 940 0968, or check out some of our other articles here.
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