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Industry faces a titanic struggle for skills

Words:
Brian Green

Construction workers are ageing, returning to the EU and rethinking after furlough, but Build Back Better needs the industry to expand. We’re back in skills shortage territory – big time

Old members of the workforce are retiring and with reduced immigration offsetting this loss construction is facing a skills shortage.
Old members of the workforce are retiring and with reduced immigration offsetting this loss construction is facing a skills shortage. Credit: Istock vitranc

The industry training body CITB has released its latest estimates for how many new construction workers need to be recruited by the industry. The figure comes in at 217,000 over the five years from 2021 to 2025 after accounting for productivity gains and changes in the workload mix.

These will both boost the number and make up for those that will leave the industry.

The economic numbers underpinning these projections are far more positive than many expected a year ago. Then, during the earlier stages of the pandemic, the fear was it might take the best part of five years to rebuild construction activity and employment numbers to 2019 levels.

This report forecasts a far stronger bounce back – an 11% rise in construction output this year followed by steady growth of around 3% for the following four years.

On this basis CITB estimates the industry will need to hit an annual recruitment rate (ARR) of 43,000 people as the sector expands from around 2.7 million to 2.84 million by 2025. It is important to note that CITB’s report takes a wider look at construction than official construction sector classification. That means around 400,000 professionals normally classified in the service sector are included.

Included in that estimate of new recruits are 950 architects each year. And based on the report’s regional data, the hot spots for recruitment are likely to be Wales, Scotland, and the East and East Midlands in England.

This all sounds hugely positive and, in so many ways, it is. But while the report notes that the number of new recruits presents a challenge, it doesn’t spell out how big a challenge it will be for the industry to retain enough skills to meet demand. In fairness this isn’t the report’s remit.

Again, in fairness, it is hard to put detail on how big a task it will be. The data are confusing to interpret. The disruption of the pandemic has made conducting surveys challenging and the results less reliable. Meanwhile it is hard to disentangle the effects of the pandemic and those caused by Brexit.

But even through the mist of confounding factors laying over a turbulent ocean of data, it is possible to see the outline of what may prove to be an iceberg on our passage to calmer waters in the form of a major skills crisis.

Construction is no stranger to skills crises. It is a near permanent feature of debate, absent only when the industry is in recession. It was indeed a topic of significant concern before Covid-19 disrupted the world we live in.

Put simply, the crisis has not melted away. The combined forces of the pandemic and Brexit have potentially made the situation worse. As with all potential crises, it may not be as bad as it looks. But it deserves serious and urgent attention.

For the Construction Products Association, it comes second on its risk list after the rapid rise in materials prices we are experiencing.

To get a handle on the possible scale of the issue, we need to look at what has become a fuzzy set of data. These data are hard to interpret with confidence because the core source, the Labour Force Survey, has been disrupted by the pandemic.

To understand where we are today it is important to look back and see why the spread of the construction workforce across age bands is so uneven. As Chart 1 shows, 15 years ago there was a large cohort of workers in their late 30s and 40s. And this bulge has steadily moved up the age bands as time has passed.

Chart 1.
Chart 1.

The bulge results from heavy recruitment in the late 1980s when jobs rose rapidly, as we see in Chart 2. That bulge was followed by a depression which corresponds to the falling number of jobs in the early 1990s. As we see, this age profile can be seen clearly today, with a bulge in the number of workers heading towards retirement.

Chart 2.
Chart 2.

As we progressed into the 2000s, however, the expansion of jobs tended to be filled increasingly by foreign workers and the reliance has grown. In London, non-UK born workers were in the majority before the pandemic.

For most of the past two decades, the industry has drawn on a ready flow of skilled workers from abroad, mainly the EU, to fend off skills shortages. From about 5% of the workforce in 2020, the cohort of non-UK born workers in construction grew to more than 17% in 2017. And in 2000, 30% were from the Republic of Ireland; today the Irish contingent represents just 4% of the overseas workforce in construction.

A big reason for the influx of foreign labour is because recruiting and training presents a big problem – not just for construction firms but for the industry. In the 1980s, the axe came down on the levy-funded industrial training boards established in the 1960s to boost national skills level. Two survived – the CITB and its sister organization the Engineering Construction Industry Training Board (ECITB), which covers the workforce in heavy engineering, such as major energy, chemical, and process engineering projects. Even in the highly market-oriented political environment of the 1980s, the need to keep them was recognised, primarily to fix a market failure. The argument then, as now, was that, left to the market alone, construction firms tend to poach rather than train the skills they need, resulting in a poorly trained and inefficient workforce.

Chart 3.
Chart 3.

Training is also hugely expensive, measured in tens of thousands of pounds per skilled worker. Firms need flexibility in the workforce, which in part accounts for the high level of self-employment. And prospective recruits are all too aware that with flexibility comes insecurity and the risk of repeated redundancy, which is one likely reason for UK youth shying away.

Given that, it is understandable that firms would tap into a ready supply of skilled workers that by their very nature are flexible on where they work. Furthermore, according to the CITB research, employers tend to view foreign workers as better skilled and with a better work ethic than many of those found locally. It is not, the research suggests, about paying less.

With Brexit the rules changed, free movement of labour ended. This does not mean the route is closed. But new barriers will discourage some if not many EU nationals. So, we must assume the inflow of workers from the EU will be less, all other things being equal.

That brings us up to today. The bulge of workers recruited in the 1980s is getting closer to retirement. The steady decline in that cohort is already in Chart 1 and it will accelerate in the next few years. Replacing this cohort of skills will not be easy. That challenge has been recognised for a decade or more.

Filling their shoes with skilled workers from overseas will be tougher. The points-based immigration system presents a barrier to EU workers when once there was a single market for employment. But the challenge runs deeper. Since reaching a peak in 2017, the number of EU-born construction workers has been in steady decline, according to Labour Force Survey data. There will be many reasons behind this, including the pound dropping relative to the Euro between late 2015 and late 2020, from about 1.4 Euro to about 1.1 Euro. This will have taken some sheen off working in the UK. 

With the arrival of Covid-19 the number has plunged by more than 70,000 – about 40% – as we see in Chart 4. This raises the very pertinent question of whether they will return. With most EU workers based in London before the pandemic and with activity hit hardest in London it is reasonable to assume this is a matter of considerable concern. We might reasonably expect many will have returned to their home countries and are unlikely to return.

Chart 4.
Chart 4.

We are already hearing of skills shortages in the sector, not just in various trades and in various parts of the UK, but worldwide. Governments across the globe see construction as a route to recovery out of the Covid crisis, and this is stretching resources.

But recovery isn’t even. Supply networks have been disrupted and some sectors and regions, such as office and retail construction are lagging, while others, such as housing and distribution, boom. The result is pockets of surplus and pockets of shortages. 

This in part explains why in the UK we still have, as of early May, 166,600 construction employees still on furlough, two thirds on full furlough, and a host of self-employed construction workers still claiming assistance through the income support scheme. The use of these schemes is heavily weighted towards London.

The data suggest we have our workforce in the wrong places, potentially with the wrong skills. Construction is almost back to the levels it was before the pandemic, at least within less than 5%. However, there may be 10% of the workforce, either employees on furlough or self-employed making claims for lack of work, not engaged.

This raises big questions over what their future will be when the support ends. It may mean a potentially large number of jobs lost. Not so bad if there is ready work to move to. Painful if not. Also, this may prompt those close to leaving to, well, just leave.

It also raises questions over who will stump up the extra hundreds of millions of pounds each year to pay to raise the level of untrained UK starters to replace the flow of ready-trained recruits from abroad.

The situation today remains hazy with quirks in the data. The future is also hazy, with numerous uncertainties. But one thing is clear. The outline of a skills shortage iceberg can be glimpsed through this haze, an iceberg that presents immense damage to the good ship construction.

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