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Construction Numbers May Not be What They Seem

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Saturday, 05 January 2013 07:40

The Washington Post rightly noted the increase of 30,000 jobs in the construction industry as one of the bright spots in the December jobs report. As the piece points out, construction was one of the largest sources of job loss in the downturn and presumably a substantial portion of the job growth in the recovery will also be construction.

However the link between construction employment and actual construction is not nearly as close as would be expected. Housing starts peaked at just under 2.1 million in 2005, just before the top of the bubble. By the beginning of 2007, starts had dropped by close to one-third to just 1.4 million at an annual rate. Yet construction employment had barely changed over this period. Similarly, since 2010 housing starts have increased by more than 20 percent, yet employment has been virtually flat.

 Residential specialty trade contractors

res-con2

Source: Bureau of Labor Statistics.

Residential building

res-con1

Source: Bureau of Labor Statistics.

This pattern can be explained by the fact that many of the workers in the residential construction sector are undocumented workers who are likely not showing up on employers' payrolls. This could explain why there was a large drop in housing starts as the bubble driven construction boom began to fade in 2006 and 2007, with no corresponding decline in employment. It would also explain why the uptick in housing starts the last two years has not led to any substantial increase in the number of construction jobs reported in the establishment survey. Essentially the data in the establishment survey are only giving us part of the employment picture in the residential construction sector.

Comments (5)Add Comment
...
written by jay, January 05, 2013 9:04
A lot of construction might not be on the payrolls because general contractors misclassify employees as independent contractors in order to dodge paying taxes. Also, a subcontractor that doesn't follow the rules might pay people with cash or even label their own employees as "independent contractors." It's a big mess. Although, I could imagine a sizable number of the workers are undocumented too. It makes you wonder what's going on with I9 compliance but I suppose the federal government lacks the funding or perhaps political will due to the construction industry to really enforcement anything. There are some construction companies doing the right thing but it seems a lot aren't.
none
written by John M, January 05, 2013 7:57
Wonder if Mr. Baker will have any comment on the Social Security op-ed by GARY KING and SAMIR S. SONEJI in the Jan. 5 New York Times.
...
written by watermelonpunch, January 05, 2013 10:23
misclassify employees as independent contractors in order to dodge paying taxes


... or dodge paying workman's comp insurance. (Though mind you, many businesses sadly don't even realize that they're dodging workman's comp insurance - they just see they're saving money by not hiring employees.)
...
written by jay, January 06, 2013 2:02
... or dodge paying workman's comp insurance. (Though mind you, many businesses sadly don't even realize that they're dodging workman's comp insurance - they just see they're saving money by not hiring employees.)


You're right. I forgot to mention worker's compensation. I believe most construction companies know they need worker's compensation but some how believe that nothing bad will ever happen to them. It's really just rationalizing something that they shouldn't be doing.
contracting and subcontracting
written by Kaleberg, January 06, 2013 9:47
The building business has long been organized into small contractors and subcontractors, not to dodge taxes or anything, but as a relic of the old guild system. If you've ever done a remodel or construction job, you typically hire a general contractor who usually has some kind of trade skill, often as a carpenter, but this contractor in turn hires plumbers, dry wall experts, painters, electricians, concrete pourers, foundation diggers, septic system builders, roofers, HVAC experts, steel workers, glaziers and so on. Only a large scale contractor would have all, or even a large number, of people skilled in all of these areas available. Most of these subcontractors, and often the contractor as well, are small outfits, often mom and pop or parent and child outfits. When business contracts, they don't lose their expertise, but they hire less casual help and make a lot less money. They may even take part time work outside their primary area of expertise. It's like when you lose weight, your fat cells get smaller, you don't wind up with fewer fat cells.

I'm sure a lot of big builders do stuff off the books or by hiring illegals, but even the above board, by the book, contractors are likely to have resilient unemployment statistics, even as most of them would love to be earning more.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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