28 Oct

WHAT IS THE LAW OF SCARCITY, AND HOW DOES IT RELATE TO…

Every business, every household, and every person is driven to make choices each day based on the law of scarcity. It always has been and always will be a fundamental influence in our world. That being said, what exactly does does this law mean, and how does it apply to the current lack of skilled workers in the construction industry?

The law of scarcity is an economic principle stating that important resources, including land, labor, and capital, come in limited supply. Scarcity is the gap that occurs between the never-ending amount of wants and needs and the insufficient amount of resources available to satisfy those wants and needs.

When scarcity is present, individuals and society as a whole have to strategize how to best accommodate, manage, and allocate the limited resources. This often involves making trade-offs or adjustments to current circumstances, as not every want and need can be simultaneously met. Naturally, when something is in scarce supply, the value of that resource adjusts to the current situation and increases.

A good example of society adapting to a scarce resource is the gasoline crisis of the 1970s. In 1973, the Middle East placed an oil embargo on the United States, and subsequently, the oil supply became severely limited.

Prices quickly skyrocketed, and in the months following after the sanctions were placed, barrels of gasoline went from costing three dollars each to twelve dollars. In addition to the price surge, the government had to find a way to ration the remaining fuel and deal with the hoards of long lines at gas stations.

One of the strategies involved only allowing people with license plates ending in odd numbers to buy gas one day, and the next day only the even numbers would be allowed. Speed restrictions were also placed in an attempt to save gas. This went on until the embargo was lifted in the spring of 1974, though residual economic effects were felt for years after.

As far as a modern day example of scarcity goes, take a look at the current construction labor drought. At a time when the industry is growing, the labor market is the tightest it’s been in years, and with rising labor costs accompanying a harsh shortage of workers, the industry is being forced to adjust and strategize in order to stay afloat.

CONSTRUCTION LABOR IS A SCARCE RESOURCE

According to a study put out earlier this year by the The Association of General Contractors of America (AGC), 75% of firms stated they expect to grow this year, but over 80% of firms expect it will be difficult to find and retain qualified workers.

The lack of qualified workers is not a new topic of conversation in the construction industry, but it is a problem that’s steadily growing. The 2007 recession resulted in the loss of roughly two million construction workers, and even though the outlook for the growth of the industry is positive, the concerns regarding labor have only increased.

In fact, in a survey put out last year by the National Association of Home Builders, 82% of builders cited the availability and cost of labor as their number one concern. If you look at 2011, only 13% of builders cited that as a main worry, and the number has firmly increased every year since then.

RAMIFICATIONS OF THE LABOR DEFICIENCY

While the demand for all types of construction services are expected to expand, construction jobs continue to remain unfilled. This presents a large problem for industry leaders who are trying to take advantage of the current boom, as there is a significant gap between the need for construction labor and the availability of workers. It’s not uncommon for contractors to have to turn down work or even enter into a joint-venture on parts of a contract due to the lack of workers.

Because the competition between firms to find and hire construction talent is so high, the cost of acquiring that labor is quite large and continues to rise. As stated above, this specific cost is a major concern in the industry.

In the same AGC survey mentioned above, 60% of firms stated they plan to increase their base pay, while a significant percentage of firms also said they will supply incentives and bonuses as well as enhance benefits. While expensive, these strategies are necessary in order to stay competitive when attracting talent.

Additionally, because labor is so tight, project completion is often delayed, and in order to afford the high price of workers, bids must be higher, resulting in higher costing projects.

WHY IS CONSTRUCTION TALENT SO SCARCE?

There’s not one concrete answer to why the labor shortage is so severe, but rather, it’s a combination of a few different points.

After the recession, a substantial amount of the construction workers who were laid off never returned to the industry, and as for the ones who did, many of them are currently heading toward retirement.

On the same token, a paltry amount of the younger workforce, only about 3% according to this survey, are interested in entering the construction industry. This presents a large skills gap between the older and younger workforce. The reason for the disinterest among the youth is often traced back to the focus on college educations and the simultaneous decrease of apprenticeships and trade schools.

Lastly, increasingly strict immigration policies also factor into the shortage of qualified laborers, as these regulations will likely affect the availability of immigrant workers who are readily willing to fill these positions.

ADJUSTING STRATEGIES TO ADAPT TO THE LABOR WOES

Anytime scarcity presents itself, society has to strategize how to best work around it. Clearly, construction firms are upping the ante in terms of payment and benefits for workers, but seeing as how only a small percentage of young people are considering a career in the trade, increasing wages and salaries isn’t the stopping point.

Aside from offering a larger financial incentive, firms are trying to ramp up the efforts to attract more workers to the industry in other ways. Creating training and development programs for high school students is a solid way to generate interest to those who are still open minded to various career paths.

Showcasing that vocational trades are financially sound options can help the long-term goal of building a younger workforce. Likewise, creating and advertising mentorship and apprenticeship programs with senior and entry-level workers can help close the skills gap, and implementing programs designed to recruit military veterans can also be of assistance.

Embracing building information technology, prefab/modular construction, and smart technology is something that more firms are starting to see the benefit in. In the same ACG survey, over 40% of firms stated they plan to increase their information technology budget.

Modern technology can help increase efficiency and productivity, allowing projects to get done faster with fewer workers. Technology is advancing daily, and it seems that shifting in the digital direction could help solve the woes of the shrinking workforce.

CLOSING UP

Scarcity is a natural part of society. In a world of infinite desires, limited resources are an inevitable. When there is a gap between the amount of a specific resource and the demand for that resource, those who need it must make choices on how to attain their goals even with the restraints presented.

While talent is in short supply all around in the construction industry, that doesn’t mean a strong future is out of the question. If you look at the history of societal advancement, some of the best moments of ingenuity have been born out of precarious circumstances.

If industry leaders continue to get creative with hiring strategies and incentives, create programs aimed at attracting the younger workforce, and utilize modern technology to the industry’s advantage, the industry should be able to successfully reshape itself.

OUR CONSTRUCTION EXECUTIVE SEARCH FIRM CAN HELP YOU THROUGH ALL OF YOUR HIRING NEEDS

S.R. Clarke Consulting Services, Inc. has placed over 30,000 successful candidates over our 41+ years of operation. We’ve been there through all of the ups and downs the industry has experienced, and through it all we’ve helped our clients promote their growth by finding the most qualified core employees.

If you need help filling important positions with top talent, we’ll work as your strategic partner in success. By utilizing our national pool of resources and working with you to define your unique needs, we’ll make sure your company prospers with the right team of people.

Contact us today to see how we can help your business thrive.

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