The Changing Composition of Construction Employment

 Data from Australia and the United States

 

 

One of the curious things about the construction industry is the perception of it as inefficient and technologically backward, yet it has been at the forefront of many scientific and technical advance for centuries. From Gothic cathedrals to railways and airport terminals, building and construction projects have bought together the best available resources to create increasingly complex structures using the best available technology. Demand for new types of structures with greatly improved capabilities in strength and span drove the development of the modern industry during the first industrial revolution in the nineteenth century. To buildiron-framed and steel-reinforced concrete buildings the industry had to not only master the use of these new materials but also develop the processes and project management skills the new technology required, with the roles of engineers, architects, quantity surveyors, contractors, subcontractors and suppliers becoming defined by the beginning of the twentieth century. The issue then, like today, was not the availability of jobs but the quality of skills during the adoption of new technologies by the industry. 

 

The industry has an undeserved reputation as a technological laggard and for low skilled workers. In reality, the nature of the work attracts people with technical skills who use ‘technological thinking’ to find solutions to the problems a project will encounter between inception and delivery. Technological thinking is essentially problem-solving through trial and error. Regardless of which part of construction they work in, for the vast majority of these people there is a great deal of satisfaction in doing this work well, following relevant codes of practice and meeting the required standards.

 

This post looks at data on construction employment, qualifications and occupations in the Australian and United States industries. It is not a comparison, because the data is not the same, but an attempt to relate changes in the composition of the workforce to changes in the industry, such as the volume and nature of work and the types of projects. Given the data, this analysis can only be indicative and the conclusions tentative. However, there is good evidence that the industry is neither a technological laggard nor an industry with an unqualified and low skilled workforce, and that these are common misperceptions and misrepresentations of construction. 

 

 

Australian Construction Employment Trends

 

Employment in the Australian industry has grown strongly over the last couple of decades, from 664,993 people in November 2000 to 994,283 in November 2010 to 1,363,057 in November 2024 [1], and over that period there has been both stability and change in the composition of the workforce. The percentage share of Technicians and trades has been and is around 50% of the workforce, similarly Labourers have accounted for 16-17% since 2000. During the mining boom the share of Machinery operators and drivers rose to 9% in 2012, but had fallen to 6% by 2024, the lowest share since 2000. As Figure 1 shows, the combined share of these onsite workers rose from 75% in 2000 to 77% in 2012, and was 73% in 2024. 

 

Figure 1. Australian construction workforce composition

 

Source: ABS 6291 Employed persons by Industry division and Occupation.

 

 

It is in the other occupations that the major changes have been happening, and here the trends have been long-running and gradual. The share of Clerical and administrative workers has steadily declined from 12.5% in 2000 to 8.5% in 2024, falling by a third over that time. The share of professionals was 2% in 2000, 4% in 2012 and 6% in 2024. And the share of Managers has increased from 9% in 2000 to 12% in 2016, where it has been since. As Figure 2 shows, the increase in the share of professionals has been the most significant change in workforce composition.

 

Figure 2. Australian construction workforce composition

 

Source: ABS 6291 Employed persons by Industry division and Occupation.

 

Putting the numbers of people employed in different occupations adds some perspective. This data does not go back past 2023 because of the introduction of a revised classification system for occupations, however over the relatively short period between August 2023 and November 2024 there were some significant changes. In particular, the number of Professionals increased from 61,900 to 81,100, a dramatic change, and the number of Community and personal service workers went from 1,100 to 3,200. The number of Managers and labourers also increased, but Clerical and Sales worker numbers both fell, as did the number of Machinery operators. 

 

Table 1. Australian construction, number employed ‘000, by occupation

Source: ABS 6291 Employed persons by Industry division and Occupation.

 

Finally, another Australian Bureau of Statistics publication has qualifications and work by industry, and table 2 shows that two thirds of construction workers have gained a qualification after leaving school, and 14% have a bachelor degree or higher. 

 

Table 2. Construction workers by level of qualification

Source: ABS Education and Work, May 2024. 

 

The Australian Computer Society’s 2024 Digital Pulse report found Construction employed 12,512 technology workers (in information technology and telecommunications jobs), with 4,983 in management and operations, 2,970 in technical and professional, and 4,559 in ICT trades. That does not include the technology workers employed by the architecture, engineering and project management firms in the Professional, Scientific and technical services industry (possibly 10% of a total of 138,058 outside Computer system design and services).

 

United States Construction Employment Trends

 

In the U.S. the data is organised differently, and there are no qualifications by industry data available. There have been significant changes in the composition of the construction workforce, particularly in the last few years. For most years from 2000 to 2009 the Nonproduction employees share of total employment was between 22 and 23%, then from 2009 to mid-2017 it was 24% before rising to 25% at the end of 2017. In 2020 the share rose again to 26% and by 2024 was up to 27.5%. The number of Nonproduction employees in December 2000 was 1,503,000 and almost the same in 2014 at 1,553,000. From 2015 the number began increasing, to 1,903,000 in 2020 and 2,069,000 in 2022, and reached 2,284,000 in 2024 [2].  

 

Figure 3. US construction employment

 

Source: U.S. Bureau of Labor Statistics, Production and Nonsupervisory Employees, Construction, All Employees, Construction, retrieved from ALFRED, Federal Reserve Bank of St. Louis. 

 

 

Another series from the U.S. has a similar pattern, for the number of Managers employed in Construction in January. Employment of Managers was 335,000 in 2000 and 414,000 in 2013, before it started increasing and almost doubled, going from 428,000 in 2014 to 785,000 in 2024. Because this was a much larger increase than the increase in Nonproduction employees over that period, the share of Managers in Nonproduction employees went from 22% in 2020 to 26% in 2013 to 32% in 2022, and was 34% in2024 [3].

 

Figure 4. Number of managers employed in U.S. construction

 

Source: U.S. Bureau of Labor Statistics, Employed full time: Wage and salary workers: Construction managers occupations: 16 years and over, retrieved from FRED, Federal Reserve Bank of St. Louis.

 

These trends in U.S. construction employment suggest a change in the industry around 2014-15. Total construction spending was recovering from the downturn after the recession in 2008-09, when monthly spending fell below $800 million, and was back to $1 billion in 2014. By 2020 the monthly spend was up to $1.5 billion. By historical standards this was a solid recovery but not exceptional. However, between 2020 and 2024 the total spend went up to $2.15 billion, driven by a doubling of manufacturing construction to $236 million a month as a result of the Biden Administration’s industrial policies that provided subsidies to build semiconductor fabs, data centres, grid infrastructure and renewable energy sites. 

 

With that increase in manufacturing construction, the number of Nonproduction employees and construction Managers also increased. The timing of this cannot be a coincidence, and could be attributed to the complexity and scale of the chip fabs, data centres and other computer and energy projects underway due the subsidies provided by the Biden Administration. Further, the change in employment was a break in the existing trend of gradually increasing employment of Nonproduction employees and construction Managers. The inflection point was 2021. 

 

Figure 5. U.S. total construction spending, seasonally adjusted

 

Source: U.S. Census Bureau, Total Construction Spending: Total Construction in the United States, retrieved from FRED, Federal Reserve Bank of St. Louis. 

 

The U.S. Bureau Of labour Statistics has detailed occupational data for 2023, but unfortunately this is not available for earlier surveys so a comparison cannot be made. However, the 2023 data is useful because it has the number employed in construction in managerial, supervisory or technical support occupations across the industry divisions of trades, non-residential and residential building, and engineering. These total 1,030,370 people, or 13% of total construction employment in 2023 of 8,120,000, which would the other half of Nonproduction employees that are not cost estimators or doing other clerical and administrative work. Many of these employees can be assumed to have a bachelor degree, for example it is a requirement for construction and architectural managers. 

 

As Table 3 shows, the great majority are employed as trades supervisors (609,580) and construction managers (266,140). The third largest category is architecture and engineering (103,940). The fourth is computer occupations (22,080), and fifth OH&S (19,600). The others are compliance officers (5,660) and architectural managers (3,370). 

 

Table 3. Number employed by occupation and industry division in May 2023

Note 1: The number here of Managers and Supervisors combined is more than the number of Construction Managers in Figure 2 above. 

Note 2: Compliance Officers evaluate conformity with laws and regulations governing licenses and permits, and excludes Occupational Health and Safety and Construction and Building Inspectors. 

Source: U.S. Bureau Of labour Statistics, Occupational Employment and Wages. 

 

 

Trades requiring qualifications like equipment operators (321,730), electricians (558,750), plumbers (384,870) and building inspectors (13,550) employed another 1,278,900 people. Adding these trade workers to the 1,030,370 managers and professionals above gives 2,309,270 and 28% of total construction employment in 2023 of 8,120,000. There were another 2,475,690 people employed in construction trades in 2023 as bricklayers, plasterers, painters etc., and many but not all of these workers would also have a certificate or diploma qualification. When the three groups are combined, this is over half the total number of employees. The BLS number of unqualified and unskilled workers was small, there were 858,900 laborers and 174,200 construction trades helpers.

 

Change Drivers

 

What can account for these changes in the composition construction employment in Australia and the U.S.? There are three reasons that are widely agreed on. The first is increased regulation, compliance and planning leading to more people spending more time to meet those requirements. In the U.S. there is the National Environmental Policy Act (NEPA), federal environmental legislation requires agencies to produce an environmental impact statement (EIS) before the project can start. These statements can be thousands of pages long and take years to prepare, and NEPA is a frequent target of criticism and reform efforts [4]. Some stats from a Thomas Hochman post on NEPA in December:

• Average environmental impact statement preparation time is 4.2 years as of 2022 
• Average review time grew from 3.4 years in 2008 to 4+ years by 2015, increasing by an average of 37 days per year
• Average delay from environmental review publication to resolution of legal challenge: 4.2 years
• Even a "finding of no significant impact" can take extensive time and documentation (1,200+ pages in one case)
• Up to $400 million spent just on regulatory/environmental review process for major projects
• Solar projects: 64% litigation rate
• 72% of NEPA litigation initiated by NGOs

 

In Australia planning rules are highly prescriptive and complex, with zoning, other regulations, and lengthy development approval processes reducing the ability of housing markets to respond to demand. Research on apartment prices in 2020 and house prices in 2018 by the Reserve bank found planning and zoning restrictions raised prices by up to 70%. A 2021 survey by Infrastructure Australia found: ‘Contractors and investors viewed planning and environmental approval processes as an unpredictable risk to project timelines and a driver of delay. The need to coordinate across multiple layers of government to obtain approvals, and the requirement to meet increasingly onerous conditions attached to many approvals, (e.g. in relation environmental approvals) prompted concern over delivery times’ (p.44). 

 

A second reason is the digitisation of construction and use of BIM leading to increasing offsite employment and project planning. A 2023 Brookings Institute report found only 23% of U.S. jobs were ‘low digitalisation’ in 2020 compared to 52% in 2003. From 2002 to 2010 the share of occupations with a high digitalization level doubled, from 9% to 18%, and in 2020 rose to 26%. A 2021 report by RMIT University found that 87% of jobs in Australia require digital literacy skills, and the 2024 submission by Industry Skills Australia to the Commonwealth Government’s Inquiry into the Digital Transformation of Workplaces (available here with all the other submissions) predicted only 45% of construction jobs would not be impacted by digital technology by 2030.

 

And a similar argument has increasing offsite manufacturing reducing the number of workers onsite and raising the proportion of offsite workers. The actual extent of the effect is unknown, but is likely to be marginal as the point is not replacing workers but moving them offsite, and there is still substantial site preparation and assembly work involved. Offsite manufacturing also requires detailed digital design and production planning work. 

 

Conclusion

 

The construction industry is neither a technological laggard nor an industry with an unqualified and low skilled workforce. These are common misperceptions that probably are often the result of people seeing poorly organised and managed sites, which could be addressed through better site facilities and maintenance. In fact, the industry employs a wide range of skills and requires technical competence from the majority of its workers. In Australia, two thirds of the workforce have a post-school qualification, and in the U.S. it is over half. In both countries the share of unskilled labourers is small, at around 10% of the workforce [5]. 

 

There are other interesting parallels between Australia and the U.S. In Australia, the share of professionals rose from 2% in 2000 to 6% in 2024, and the share of Managers increased from 9% in 2000 to 12%. Adding the 2024 8% share of Clerical and administrative workers makes 26% in these occupations. In the U.S. between 2014 and 2020 the share of Nonproduction employees rose from 24% to 26%. In both countries the number of Managers has increased by 50%. The share of workers with a bachelors degree or higher is also the same, around 14%.

 

Why, despite the differences in scale and output mix in the two countries, is the composition of the workforce so similar? To some extent it must be because the methods and processes followed in design, development, construction and project management are similar, as is the use of machinery and equipment. There is not a lot of difference in some types of projects, such as commercial and institutional buildings and road and rail infrastructure. Another factor would be the geographical dispersion of activity, both are large countries and work is spread out across regions. 

 

The trend in both countries is toward fewer low skilled jobs, and this applies to both onsite labourers and offsite clerical and administrative workers. An increasing share of jobs requires qualifications, and more of these workers have university qualifications. This is not to suggest there will be no unskilled workers in future construction, but there is no reason to believe these trends have run their course. 

 

                                                                            *

 

[1] Discussed in a previous post Australian Construction and the Shortage of Workers

[2] Production employees include working supervisors and all nonsupervisory employees engaged in production operations. Nonsupervisory employees includes office and clerical workers, repairers, salespersons, operators, drivers, laborers and other employees at similar occupational levels. 
[3] Construction Managers: Plan, direct, or coordinate, usually through subordinate supervisory personnel, activities concerned with the construction and maintenance of structures, facilities, and systems. Participate in the conceptual development of a construction project and oversee its organization, scheduling, budgeting, and implementation. Includes managers in specialized construction fields, such as carpentry or plumbing. From the Bureau Of labour Statistics Standard Occupational Classification. 

[4] For a history and how NEPA works see Brian Potter https://www.construction-physics.com/p/how-nepa-works. For a survey of research see Noah Smith https://www.noahpinion.blog/p/the-big-nepa-roundup. For comprehensive data see Thomas Hochman https://www.greentape.pub/p/nepastats and why reform is necessary https://www.greentape.pub/p/revisiting-pro-nepa-studies  

[5]  The review of the UK's ITBs by Mark Farmer has just been released. It was done in 2023 and the data is for 2020, but it says on page 41:

"In terms of the job role make up of the construction industry, 57% are elementary level, plant or trade craft operatives. Professional, management and technical roles constitute 33% of the workforce with 10% of the workforce are in support or administrative roles.

In terms of attainment, 73% of the workforce are at level 3 and below, including 5% who are unqualified. 21% are degree level or above qualified."

Interesting because similar to Australia and the US.

https://www.gov.uk/government/publications/2023-industry-training-board-itb-review

 

 

 

Australian Construction and the Shortage of Workers

 Industry employment and the quantity of work done

 

This post looks at output and employment in Australian construction over the last few years. Although there have been many suggestions there is a shortage of workers and this is the main constraint on industry capacity, construction employment is now all-time high. Between June 2021 and June 2023 employment increased by 14% while output increased by only 4%.

 

The construction industry is widely seen as having a serious employment problem, or more precisely a significant lack of workers. In November 2023 Master Builders Australia estimate was the industry will need to attract about 480,000 new workers by the end of 2026 to build enough homes for a growing population. How they got this improbably large number of about 40% of current employment is not explained. 

 

The December 2023 Skills Shortage Quarterly report from Jobs and Skills Australia found fill rates for Engineering Trades Workers (30%) and Construction Trades Workers (38%) suggests ‘skill shortage pressures are most acute for these occupation groups’. (The fill rate is the percentage of advertised positions filled). 

 

Another indicator, the April 2024 HIA Trades Availability Index was -0.58, down from -0.64 at the end of 2023. The index has had a shortage of skilled tradespeople in Australia since 2021, as in Figure 1. This ‘acute shortage’ of skilled trades in 2024 is despite a slowdown in building activity. 

 

Figure 1. Housing Industry Australia Trades Availability Index

 

Source: HIA

 

In October 2023 BuildSkills Australia was established by the federal government, as the national Jobs and Skills Council for the built environment sector, to find solutions to the workforce challenges facing the construction, property and water industries. Their March estimate that an extra 90,000 workers will be needed to achieve the National Housing Accord target of 1.2 million homes over five years led to  headlines like this one in the Sydney Morning Herald and The Age on March 24:  Australia skills shortage preventing Labor's housing goal. 

 

Finally, in response to Peter Dutton’s budget reply speech developers and economists lined up in the Financial Review  to argue any limits on skilled migration that reduced construction workers would add to the shortage of skills and workers and further reduce the already remote likelihood of building anything close to a million new homes in the next five years. Residential developers also claimed non-residential building and engineering construction, which are increasing output, are taking workers away from residential building, where output is falling, and making the skills and worker shortage worse. 

 

For all the claims of lack of workers and constraints on capacity it is an inconvenient fact that construction employment is actually at an all-time high. According to the Australian Bureau of Statistics it was a record 1,338,314 people employed in November 2023 and was 1,316,931 in February 2024. There has been significant growth in the number of people employed over the last few years, but over that period the volume of work done has barely increased. That is the issue, why is output not increasing as the number of people employed is increasing? Because it is a relatively labour intensive industry, construction industry capacity is assumed to be directly related to the size of the industry workforce.  

 

The current high level of employment does not, of course, mean there is not a problem with training, skill levels and worker availability, or that there will not be a problem with maintaining the construction workforce in the future, which is aging and has to compete for new workers. And the focus on trade skills means that shortages in professional services like designers, project managers and quantity surveyors are often not included as part of the problem.  

 

Industry Output

 

The Australian Bureau of Statistics final estimate of the quantity of construction work done is published several months after the quarterly estimates of the value of building and engineering work done. The most recent data is up to December 2023. These chain volume measures of work done adjust value of work done for inflation and are for the volume or quantity of work done. Construction industry capacity is the volume of work that can be done in a year, based on the limits that exist in the supply of materials and the availability of workers.

 

With the significant increases in prices for building materials and labour costs over the last couple of years the headline numbers for the nominal value of work done have increased by around 40 percent for both building and engineering. Adjusting the nominal value of work done for these price increases to get an estimate of the quantity of work done dramatically changes the picture. 

 

The output or volume of work done by the construction industry has increased over the last few years, but not by much. From the ABS chain volume measure low of $189 billion in 2021 and 2022 it was $196 billion in 2023, and my forecast is $202 billion in the year to June 2024. In the six months to December 2023 the volume of work done was $106 billion, but less work is done between January and June because January is usually the annual holiday and there are other public holidays.  

 

As Figure 2 shows, the increase in work done is due to small increases in non-residential building and engineering construction. Engineering construction was $63 billion in the year to June 2023 (half the record levels of the peak mining boom years of 2013 and 2014) and will be at least $3 billion more in 2024. Non-residential building work done was $54 billion in the year to June 2023 and will be a couple of billion more in 2024. The quantity of residential building work done has been $80-81 billion a year since 2020, and is forecast to be at that level for 2024 (there was $53 billion of residential building work yet to be done in December 2023).  

 

Figure 2. Australian construction output by sector

Source: ABS

 

Industry Employment

 

Both Infrastructure Australian and the National Housing Supply and Affordability Council claim skill shortages, a lack of workers and low productivity are the limiting factors on Australian construction output. However, ABS data on construction employment has a record number of people employed in the industry in 2023 and 2024. The most recent ABS Labour Force data had total employment of 1,316,931 persons in February 2024 and an all-time high of 1,338,314 in November 2023. Also. around 80% of people employed in construction are working full-time. Figure 3 shows output and employment since 2007. The chain volume measure of construction work done is over the year to June and employment is for the month of May. Between 2021 and June 2023 employment has increased by 14% but output by only 4%. This is the issue. 

 

 

Figure 3. Australian construction output and employment

Source: ABS 

 

The number of people employed in construction has increased year after year from 2012, until a slight dip in the Covid years of 2020 and 2021. Then there was a large increase of 168,421 workers in construction between the 2021 low and February 2024, with most of that increase (130,000) between 2022 and 2023. 

 

Is this a shortage of workers in the industry? All the official reports and industry commentators all argue this is the problem, but the number of people employed increased steadily until 2020, and then in 2022 and 2023 grew strongly. Perhaps the ABS is getting its figures wrong and over-estimating the number of people employed. The big increase in 2023 may be revised down in future data releases. However, ABS data is generally reliable and there have been no issues raised with their methodology. 

 

Between February 2021 and February 2024 the increase in total construction employment was 168,421 or 14.7%. For the three industry divisions the increases were 34,616 for Building (10.6%), 22,736 for Engineering (19.5%) and 168,421 for Construction services (15.8%). The increase in Engineering employment reflects the high level of infrastructure work in transport and energy, but Building and Construction services also had substantial growth in employment.

 

 

Figure 4. Construction employment by industry division

Source: ABS

 

An Inconvenient Fact

 

For all the estimates of a lack of workers and constraints on capacity it is an inconvenient fact that construction employment is at an all-time high, and was at a record 1,338,314 people employed in November 2023. The big increase in employment over 2023 came with a slight increase in output as a small drop in Residential building was counterbalanced by increases in work done in Non-residential building and Engineering construction. The big increase in output was in Engineering work, which is the least labour intensive of the three industry sectors, and over the last 12 months Engineering has actually lost about 3,000 workers.

 

The largest increase the last few years was over 160,000 more people employed in Construction services, which are the trades. The great majority of these people are usually employed in residential building, so the increase in employment at a time when the volume of residential work has been steady or slightly falling is somewhat mysterious. There may have been more people employed in civil engineering related trades like equipment operators and electrician, but because the ABS does not allocate the trades to the sectors of residential building, non-residential building and engineering it is impossible to know where these people are working. This would be an extremely useful one-off survey to add to their data collection, as was done in recent years for other industries like Professional and technical services and Building cleaning, pest control and other support services. It could also identify the extent of worker mobility across the three sectors in construction, which would be an important addition to the policy framework for improving productivity and housing and infrastructure delivery. 

 

Whether the recent increase in the number of workers will lead to greater industry capacity and an increase in industry output not clear. New workers lack experience and are expected to be less productive than current workers while they get up to speed, a process that can take a couple of years of learning by doing. So there is a potential boost to productivity in the future. On the other hand, over the last few years the industry has employed a lot more people to produce a volume of work that has barely increased. That may be a management problem. 

 

 

Industry Capacity

 

There are no official estimates of construction capacity, despite the numerous reports issuing from the various agencies and research organisations about the housing crisis and rising project costs. Infrastructure Australia published their 2003 Infrastructure Market Capacity report in December, where ‘several market capacity constraints are inhibiting the ability of the sector to deliver projects on time and on budget’ (p. 5). These were skills shortages, non-labour supply challenges, and stagnating productivity. On their Public Infrastructure Workforce Supply Dashboard in October 2023 there was a shortfall of over 200,000 workers of which about 130,000 were construction trades and the rest professional services like engineers, quantity surveyors and project managers. The shortage is forecast to double by mid-2025 to over 400,000 workers. The report did not, however, include an estimate of infrastructure construction capacity, which is primarily engineering construction where output volume has increased to over $60 billion a year

 

The National Housing Supply and Affordability Council (established in 2023) released their first report in May 2024 with a lot of data on residential building activity and forecasts for the next 6 years. But no estimate of capacity as the maximum number of houses and apartments that could be delivered in a year was given. Chapter 3 discusses current supply and demand conditions and the price of housing, and Chapter 4 has projections for new housing supply and demand over the next 6 years finding ‘market housing supply is projected to average around 43,300 dwellings per quarter, or 173,000 dwellings per year … New net market supply is expected to peak at an annual rate of 177,000 dwellings in 2026–27’ (p. 83). Their view is the housing supply system is limited because it is inflexible and unresponsive to demand, with a long-term trend of limited availability of skilled labour, materials and finance, and weak productivity growth.

 

Industry capacity is the limit on production, a theoretical maximum of what can be produced in a single period. In some cases this is straightforward, based on the installed capacity of paper mills, blast furnaces or other machinery, adjusted for their utilization rate and maintenance requirements. A production line for bottles, chips or cars can produce a set amount day after day, week after week. Construction is not like this.

 

Buildings bring together many suppliers at many sites. This creates coordination and logistical problems to a degree not found in other industries, shipbuilding for example brings together many suppliers but at few sites. Manufacturing usually has a few suppliers at a few sites. Prefabrication can go some way in solving the many suppliers problem but adds transport and installation costs, and still requires site preparation and coordination. Those sites can be remote, or difficult to access, or have challenging ground conditions. All these and other issues affect the organisation and delivery of projects to a greater or lesser degree. On a large project the set-up costs of the site office and sheds can be significant. 

 

Also, it is hard to optimise the use of machinery and equipment, such as cranes, excavators and hoists. These will be worked as efficiently as possible but can be affected by weather, use rates at different stages of a project, interruptions to site deliveries and other factors outside the project managers control. And despite the increase in plant, equipment and powered hand tools, construction is much more labour intensive than industries it is typically compared to such as manufacturing or mining. While there are significant differences in labour intensity between residential building, non-residential building and engineering, which is high, medium and low respectively in these three sectors when compared to each other, labour intensity is high compared to manufacturing or mining. This makes the number of people employed the key constraint on construction industry capacity.

 

 

Why is output not increasing with employment?

 

Despite the growth in the number of people employed over the last few years the volume of work done has barely increased. That is the issue, why is output not increasing as the number of people employed increase? Because construction is a relatively labour intensive industry, industry capacity is assumed to be directly related to the size of the industry workforce. If the volume of output had increased by the same percentage as the number of workers it would be over $25 billion more in 2023-24. 

 

There are two common answers to this question: inexperienced workers are less productive, or the quality of managers may not be very good so they don’t get high levels of productivity from their workers. Both of these may explain some of the missing capacity, but cannot plausibly explain all of it. I don’t think these are the important factors affecting capacity, instead there are three others that could account for much of the missing output.

 

First, increased regulation, safety, planning and approval requirements might require more people working on tasks that do not directly produce more buildings and structures. This probably does not affect the trades as much as employment by building and engineering contractors. For example, the 2020 NSW Design and Building Practitioner Act introduced compulsory insurance, declarations to be given by designers and builders to ensure compliance with the Building Code of Australia, and a registration regime for engineers. Other states have also introduced legislation, following recommendations in the 2018 Building Confidence report, to address the problems of defects in apartment buildings, insolvencies and phoenixing that became common during the housing boom. 

 

Second, projects are taking longer to complete. In many cases this might be due to increased size and complexity, and the number of large transport and energy infrastructure projects now under construction will be stretching resources with their requirements for materials and labour. In residential building there has been an increase in high-rise apartment developments, which take years to complete compared to months for a detached house, but all types of residential builds are taking longer and it is not obvious what is causing the increase in completion times. The Commonwealth 2024-25 Budget Papers included ABS data on rates of construction:

Apartment, townhouse and detached house completion times increased nationally by 39 per cent, 34 per cent and 42 per cent respectively over the 10‑year period to 2022–23. Most of this increase is concentrated over the pandemic period, however there has been a relatively consistent upward trend in apartment construction times since 2018–19. (Statement 4: Meeting Australia’s Housing Challenge, p. 141).

 

Finally, the industry is dealing with new types of occupations and projects, particularly in projects related to the energy transition. It is possible that new types of projects such as wind and solar farms are in the early stages of a learning curve and efficiency and productivity will improve as more are completed. There may also be a problem with the Australian Standards Classification of Occupations (ASCO) not including new roles in construction, for example in data or BIM management, renewable energy and energy efficiency related tasks. Both the Master Builders Association and the Australian Industry Group have argued the pace of occupational change in construction between ASCO revisions results in a growing mismatch between ASCO’s classifications and contemporary job titles or skill sets.

 

Conclusion

 

The relationship between construction employment and output has changed over the last few years, as employment has increased but real output has not. As well as the number of inexperienced new workers and the quality of the workforce, there are three other factors that could account for the missing growth in output that the increasing number of people employed could be expected to lead to: the industry may be becoming more labour intensive as projects get bigger and more complex; more people may be involved in digital and design tasks; and regulation becoming more extensive requires more people for compliance. 

 

Projects are also taking longer to complete, and this also needs explanation. There may be supply chain and logistics issues, size and complexity may be affecting the rate of construction, or projects may not have sufficient workers onsite and the work force could be spread across too many projects that are simultaneously under construction. There may be a range factors causing increased completion times, lowering industry capacity and the volume of output. 

 

The ABS could survey the industry to identify what has been causing this increase in project completion times, which might allow policy initiatives that would reduce completion times. It could also survey Special trades workers so they can be allocated to residential, non-residential or engineering work, which would significantly add to our understanding of construction employment at a time when shortages in skills and workers are affecting the capacity of the industry and the output it can produce.