Last week, the Bureau of Labor Statistics reported a 34,000-job drop in residential construction employment in May, with a year-over-year decline of 316,000 home building jobs since May 2007. Meanwhile, employment in non-residential construction fell by 70,000 over the same period, according to the government. But do those numbers accurately reflect what is happening in the construction labor market? Ken Simonson, chief economist with the Associated General Contractors of America, has his doubts.

Simonson says the latest jobs figures are hard to reconcile with the construction spending numbers released by the Census Bureau on June 2. The 316,000-job slump in residential employment represents just 9.6 percent of the total job count for that slice of the industry, Simonson notes, but the Census Bureau says total spending on residential construction fell by 21 percent over roughly the same period, from April 2007 through April 2008. "It is very unlikely that home builders and residential specialty trade contractors have reduced their headcounts by less than 10 percent when they are performing 21 percent less work," observes Simonson, especially when sagging builder confidence and dwindling permit activity both point to a further slowdown.

Conversely, says Simonson, the Census Bureau's estimate of non-residential construction through April 2008 showed a year-over-year increase of 12 percent. He says this is equally inconsistent with the Bureau of Labor Statistics' (BLS) report of a 1.6 percent drop in employment for that sector. How could commercial contractors boost production by that much while simultaneously cutting their workforce?

Simonson thinks he knows why the numbers don't add up: crossover work by specialty trade contractors.

"It appears likely that many of the workers being counted as 'residential' specialty trade contractors are actually working on nonresidential projects, such as wiring, wallboard installation and concrete finishing for schools, offices, hotels, etc.," he reasons. "Indeed, many general contractors have reported that subcontractors who formerly worked on housing are now bidding for nonresidential work. Such a misclassification could occur if a company listed its industry code as residential when it entered the BLS database, but it is now doing nonresidential work and does not change its code."

Taking a rough guess to reconcile the employment numbers with the spending numbers, Simonson gets some interesting results. Suppose residential trade employment really plummeted by 21 percent and not 10 percent in the past year? That would mean an additional 360,000-job loss in home building. And if those workers actually swapped over to the commercial side of the fence, nonresidential trade employment might have really risen by 260,000, or 7 percent, not fallen by 1.6 percent. Numbers like these make more sense in the context of a 12 percent year-over-year increase in commercial construction spending, argues Simonson.

If this is truly the situation, there are several implications for builders to consider. First of all, if contractors can find commercial work, they won't be so desperate for residential jobs and home builders might not see the easing of labor costs that they might expect in a down market. So far, that is what appears to be happening. Even as construction employment has fallen, average annual earnings for construction industry employees have climbed 3.7 percent in the past 12 months, Simonson says.

Meanwhile, the concentration of job losses among Hispanic immigrant workers who, on average, tend to be on the lower-paid end of the labor force, has skewed wage rates among the remaining employed workers. If Hispanic workers have lost jobs at a greater rate, which appears to be the case, that will also be felt as a rise in the median wage, Simonson says.

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Ted Cushman is a contributing editor to BUILDER magazine.