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Home Publications Blogs Beat the Press Teaching the Washington Post and Goldman Sachs About Employment in the Construction Industry

Teaching the Washington Post and Goldman Sachs About Employment in the Construction Industry

Wednesday, 20 March 2013 04:49

The Washington Post has a piece puzzling over the fact that:

"Builders started work on 27.7 percent more homes in February than they did a year earlier. Yet the number of construction jobs in the United States was only 2.9 percent higher, year-over-year."

The Post turned to analysts at Goldman Sachs who concluded that the answer was labor hoarding. They make a case that firms are changing the length of the workweek to meet the increased demand for labor rather than adding more workers. This one doesn't fly.

First, residential construction is a comparatively low-paying sector with casual labor relations. This is not General Motors with union contracts that make layoffs difficult. In other words, it is not a sector where we would expect to see a lot of labor hoarding.

The data on hours shown in the piece also do not support the labor hoarding story. While the average workweek has increased by roughly 3 hours since the trough of the downturn in 2009, it is up by only about 0.5 hours since 2011, which means that it would be equivalent to an increase in employment of less than 2 percent. That will not fill much of the gap identified in the piece.

So, what's the real story? First, total construction is up by much less than residential construction. The Commerce Department reported that total nominal construction was 7.1 percent higher in January of 2013 than January of 2012. In real terms this would be a rise of around 5.0 percent, not too different from the increase in employment.

The other big issue is that many of the workers employed in residential construction are undocumented and may not show up in the payroll data. In fact, there was a sharp decline in residential construction in 2006 and 2007 even as employment in construction was still growing. From its peak in 2005 to the end of 2007 housing starts fell by almost 40 percent, while construction employment was little changed. Given this history, there is no reason to expect a big upturn in employment in response to the relatively small rise in starts that we have seen in the last year.

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Comments (4)Add Comment
Jedi Mind Meld Retort to Bad Press Pundits
written by Chris Engel, March 20, 2013 5:22
I love it when I read an article (particularly in WaPo) that makes me think "man, the premise is so flawed and there's no opposing argument being presented" and I hope that you will be posting on it to debunk the rationale.

I know that WonkBlog has a different style and it's more machine-gun one-sided pieces that have analysis and opinion blended in and aggregate to somewhat of a balanced picture of things, but this was really just a "hey, I talked to guy from Goldman Sachs and this is what he says is the problem" without actually providing any balance. As if what they say is gospel.

Anyway, this one and the David Brooks column were two that made me cringe when I read them, and secretly hoped you would bitchslap. So it was great to see both addressed!
Your approach and conclusion
written by trast, March 20, 2013 7:29
Is very logical.
written by skeptonomist, March 20, 2013 7:54
Residential housing starts are still painfully low, but what a lot of people are seizing on is the rate of increase - google FRED:HOUST. Dean shows this on a scale that totally obscures what has been happening. Lately the rate of increase has been greater than in the long boom of the 90's. This could be a flash in the pan, but it is a definite sign of improvement. The reason for the supposed lag is something else - people have been kicking this around for some time (more at Kevin Drum's blog)
Narrowly Focused
written by JP, March 20, 2013 8:16
The WaPo article reminded me of a poorly written class project.
"I can only come up with one idea, so let's just try to justify that!"
With new materials, construction techniques, and off-site preparation and production by sub-suppliers, simply measuring the number of final assembly employees is going to become increasingly meaningless. When an architect can build a 30+ story building from the ground up in 30 days a lot more labor went into the project than its final assembly indicated.
Author Erwin will realize shortly that trying to correlate housing starts vs. labor is going to become even more meaningless with the advent of the 3D printer. Yes, it has already been done.

I would suspect that Dean's suggestion of "off the books" employees being a contributor to the discrepancy has more merit. For a stressed builder, just trying to come out of a recession, the pool of talent out there willing to take that kind of job is hard to ignore.

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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.