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Monica Shaw
is Executive Editor,
Pulp & Paper
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AS FAR BACK AS 1988, THE U.S. Department of Labor predicted a shortage of skilled workers in the domestic construction in-dustry. Though the recession of the early 1990s somewhat offset these predictions, an increase in domestic construction activity in the mid- to late 1990s caused shortages of skilled workers to surface in various parts of the country.
"We came out of a recession ten years ago, and some of our most skilled workers in the construction industry had found other work," describes Dan Bennett, president of the National Center for Construction Education and Research (NCCER). "Estimates are that we are now falling about 240,000 people per year short across all construction positions."
According to Bennett, the shortfall is a result of demographic issues, normal attrition, and the construction industry's poor image. However, these factors, along with construction users' fixation on cost per hour rather than total cost, have also contributed to degraded skill levels in workers. "Currently, there is an extraordinary struggle for a very ordinary workforce," says Bennett.
In an era of decreased capital spending brought on by a prolonged down cycle in the paper industry, it might appear that concerns about available construction labor are irrelevant. However, logic says that if the North American industry is to remain competitive, this bubble of curtailed capital spending will eventually burst. If this occurs in the next three to five years, the paper industry may find itself competing with booming industries, like power, for construction labor. Such competition has the potential to drive up project costs.
"Like it or not, owners [construction users] can't avoid the inescapable impact of a failure to turn this workforce issue around," says Kent Underwood, manager of project management for Solutia Co., Monsanto's chemical business. "Ultimately, the impact of a tightening labor supply and low quality construction due to declining skills will come to rest with owners, who ultimately pay the bills. Longer schedules, escalating compensation to retain an increasingly lower skilled workforce, and poor safety brought on by excessive overtime will mean less construction for the money."
AN EXISTING PROBLEM GETS WORSE. In late 1996, the construction committee of the Business Roundtable, an association of CEOs from many industries, surveyed 200 of its member companies to validate many reported effects of craft shortages. Sixty percent of owners reported a shortage of skilled workers on projects, and 75% said the trend had worsened in the past five years. One of every four respondents reported shortages that resulted in cost overruns.
In 2001, the Construction User's Roundtable (CURT) conducted the same survey with its membership--a broad cross section of owners in a variety of sectors. This survey showed that 82% now report shortages of skilled labor on projects, with 78% saying that shortages had worsened in the last three years. One in three owners reported increased cost, schedule delays, and project cancellations owing to craft shortages, and 73% called the impacts significant or moderate.
In some regions of the country, owners reported a full-blown crisis. High de-mand combined with fewer skilled craftspeople, attrition, and poor image with negative recruiting implications were cited as sources for the shortage of skilled labor, according to Greg Sizemore, executive vice president of CURT. Relatively low wages were also listed as a factor, something that John Redmon, executive vice president and chief operating officer for BE&K Inc. has noticed for some time.
"Shortages have been building for 15 years due to depressed wages, and finding the labor to do the projects this year has become a very critical issue," says Redmon.
Projections in the Bureau of Labor Statistic's (BLS's) Employment Outlook 1998-2008 offer further insight into why these shortages are occurring.1 Based on BLS data addressing 14 trade and construction management occupations during the 1998-2008 period, the "Total Growth and Replacement Needs" column in Table 1 reflects the number of workers projected to leave a construction occupation for any reason, including promotion within that industry.
Of that nearly 1 million, the "Growth and Net Replacement" column shows the number of employees that must be added due to job growth and employees that permanently leave an occupation. So, nearly 20% of the required workers will be totally new to the construction industry.
With the current market, the high number flowing out of the construction industry will put pressure on hiring and retention, and, therefore, wages and benefits.1 This trend also showed up in the CURT survey, where some respondents indicated they were now using various incentives to minimize the skilled craftsperson shortage. The ones most commonly cited were the use of extended work weeks and guaranteed overtime.
"As it stands today, we're staffing our projects, but it's not easy, and there are strategies that we have to use to get people that were unnecessary ten years ago," notes Stuart Stoves, vice president of construction and life science for Fluor Daniel.
About 64% of respondents said these extra perks equaled to greater than 10% of total gross pay. So, where does the money come from to support the extra benefits?
"The construction user or owner ultimately ends up footing that bill," states Sizemore. "The contractors don't--they're sharpening their pencils."
A BATTLE FOR THE ORDINARY. The current shortages of construction workers are not just associated with sheer numbers, but also with the skill of available workers. Fifty-three percent of respondents to the 2001 CURT survey noted that overall skill level of construction workers in all crafts had declined.
"It's a two-fold problem," explains Stoves. "It's not easy to find the number of people you need, and it's not easy to find the quality of people you need. There are people getting into the industry who just don't have the skills."
As Table 1 shows, shortages are predicted for all crafts. In the CURT survey, those that were most serious included electricians, pipefitters, and welders.
TABLE 1. The Bureau of Labor Statistics predicts future construction labor shortages.1
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BLS Projections and Definitions
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Figures are taken directly from the BLS employment projections, 1998-2008
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Annual Job Openings
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Annual Job Openings
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Trade or Profession
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Total Growth & Replacement Needs
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Growth & Net Replacement Needs
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Heating and AC
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30,000
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10,000
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Electricians
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93,000
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23,000
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Operating engineers
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20,000
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3,000
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Carpenters
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236,000
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36,000
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Plumbers and fitters
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58,000
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8,000
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Welders
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38,000
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12,000
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Structural steel
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14,000
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3,000
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Sheet metal
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23,000
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9,000
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Brick and block masons
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30,000
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5,000
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Roofers
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29,000
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7,000
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Drywall installers
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33,000
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3,000
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Helpers
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167,000
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31,000
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General maintenance
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181,000
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37,000
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Construction managers
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33,000
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9,000
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Yearly Average Job Openings
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985,000
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196,000
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"It kind of runs the gamut," offers Redmon, "but welders are a big one."
Who is driving this low skill level? For Dr. Richard Tucker, director of the Center for Construction Industry Studies, the problem lies in part with owners who are obsessed with the bottom line.
"When negotiating with a contractor, owners are only interested in the hourly wage," Tucker describes. "Going with a contractor for $0.10 less per hour often causes that contractor to hire less skilled workers, but that can impact the schedule in the long run and end up costing more."
Tucker notes that people in the construction and engineering sides of owner companies do understand the benefits of paying more for skilled workers. "They just can't sell it internally to their accountants and financial people, and that's not unique to pulp and paper," he observes.
Bennett, however, sees some improvement in skills stemming from improved training programs at larger construction companies.
"I think we're better off today than we were five years ago, but I think we have an awful long way to go," says Bennett.
NEGATIVE FACTORS FACING CONSTRUCTION. Recruiting 200,000 new workers from a pool of approximately 4.2 million new entrants to the job force through 2008 will prove tough. Also, since the construction industry has historically populated its workforce from the supply of 18- to 24-year-olds, the fact that this demographic group is slowly declining further complicates recruitment. And, as Underwood notes, "Today's young people are not interested in entering the trades."
The construction industry is unattractive for a variety of reasons, especially when the economy has been so strong for a number of years. Obviously, the work is dirty, physically challenging, and often dangerous. Other factors include requirements for travel, low wages, lack of training, and a limited career path.
Traveling for work. The need for some workers to move around for work negatively impacts recruitment and attrition, according to Ken Eickmann, director for the Construction Industry Institute (CII).
"Especially with today's two career families, people are not as willing to change location," emphasizes Eickmann.
Despite this perception, 72% in the CURT survey said lack of mobility did not impact the current labor shortage. However, respondents did cite this as a major obstacle to entry from younger people. Redmon agrees, pointing to the strong economy as another reason for the reticence to enter the industry.
"Ten years ago, a person went to work as a helper on a construction job," says Redmon. "Today, they go to a McDonald's or a Burger King. It's cleaner and they can stay at home."
Dennis Kaltan, vice president of onshore construction for Kellogg Brown & Root (KBR), says his company has not experienced many problems getting people to move. However, he does question how this impacts attrition.
"I think you could assume that, if there were no more jobs in a particular region for a construction worker with a career in pulp and paper projects, this person might move or get out of the business altogether," describes Kaltan. "Then, if the pulp and paper business comes back, would he or she come back?"
Poor pay and benefits. Despite the fact that some respondents identified more perks for workers, the 2001 CURT study still pointed to relatively low wages as a major cause for the construction labor shortage. According to Tucker, the basic wage rates for construction workers and for manufacturing laborers are now close, whereas construction workers once made twice as much. In addition, manufacturing people are usually guaranteed 2,000 hours a year where construction workers only average around 1,600 to 1,700 hours. "By the time you translate that into dollars, construction just doesn't pay that much any more," says Tucker.
Lack of a career path certainly contributes to poor pay. Tucker notes that once a worker reaches journeyman status, which is usually around age 30, he has his salary set for life. For example, a skilled welder with ten years of experience typically makes about $17 to $18/hour. So, attrition from the industry usually begins around age 35. "They drop out and sell used cars or something," says Tucker.
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With the continued downturn in the pulp and paper industry, has the engineering skill base been severely impacted? Right now, major engineering and construction companies say no, but universities may be indicating a different picture for the future.
"There's a tremendous resource base that's available now, simply because capital expenditures in this industry are lower, and, with mergers and acquisitions, there have been layoffs of extremely talented individuals," describes Mike Colvin, vice president of business development for forest products, Kellogg Brown & Root. "Right now, there's an abundance of talent. Time will tell whether or not these resources move into other industries."
John Redmon, executive vice president and chief operating officer of BE&K Inc., also reports a large amount of existing engineering expertise for pulp and paper, although questions surround the possibility of "retooling" them for other industries.
"Right now, engineering talent seems fairly available," says Redmon. "We're maintaining the pulp and paper skill set in this down market, while retraining some engineers to address other industries. However, expecting them to take care of pulp and paper when it comes back, while not ignoring the other industries, is a pretty fine line to walk. And, on the process side, we're keeping our folks available to help customers, and that talent is abundant as well."
But what about the future for engineers in pulp and paper? There are ten major schools in the U.S. that offer four-year pulp and paper industry-related degrees. Regardless of the program, troubled times for paper companies and the allure of other more exciting industries like high-tech appears to be hurting the industry's ability to attract young engineers.
How bad is the problem? At this point, it's hard to say whether the drop off reflects a short-term trend that will reverse or whether it's a long-term secular decline.
"We're not sure whether we will have enough students coming out of the various schools to meet industry demand," notes Harry Callinan, chairman of Auburn University's Pulp and Paper Department and president of the Pulp and Paper Education and Research Alliance (PPRERA). "With consolidations and downsizing, it's difficult to identify what base level of new scientists the industry will need in the future."
Throughout most of the 1990s, enrollment in the nation's pulp and paper programs remained fairly level with only short-term fluctuations. The major schools with B.S.-level paper school programs combine to produce about 1,000 graduates annually, explains Callinan, but recently this has dropped significantly.
"The level of graduates held throughout most of the 1990s, but, based on 1999 data, we've seen a major drop of about 25% to 30%," describes Callinan. "We don't know if this is temporary or indicative of a permanent change in direction."
Another worrisome trend is that, although the paper industry has traditionally employed 5% to 7% of all the chemical engineering graduates annually in the U.S., only 2% or 3% of CE's went into the paper industry last year.
At one of the largest paper schools, North Carolina State University, enrollment slipped, but appears to have rebounded.
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PULP AND PAPER PROJECTS TODAY. So, what, if any, problems is the current shortage of skilled workers having on pulp and paper projects? Opinions are mixed among contractors serving the industry, especially in wake of lower capital expenditures. In addition, shortages affecting the industry appear regional. However, contractors are addressing the problem through training and other recruitment tactics.
The here and now. According to Stoves, overall construction labor shortages have had impacts across all industry sectors for Fluor Daniel. Incentives now play a larger part in attracting workers, as mentioned previously.
"We're finding enough people to get our jobs done, but if I told you that it's easy, I'd be telling you something that's not true," says Stoves.
At BE&K, Redmon also reports the trend toward additional incentives, something that has become increasingly hard to absorb from a cost standpoint in the tight labor market, as was done for many Cluster Rule projects.
"The norm now is that we're paying a somewhat higher wage, basically a guaranteed 50 hour work week, which is 10 hours overtime, and generally subsistence or per diem to try to get people to work for us," explains Redmon.
As Bennett of NCCER describes, "Contractors can probably find people, but they are not necessarily the kind of people you prefer." Paying more for better skills, though, is difficult for a depressed industry such as pulp and paper.
"In the past, I have found that pulp and paper clients tend to be more prone to go for the lower price," describes Stoves. "It's not that they don't understand there are problems with that, it's just that they don't have the money to spend."
However, Kaltan says that overall construction labor shortages have not im-pacted KBR in the pulp and paper sector.
"There hasn't been a lot of pulp and paper work in the U.S. over the last couple of years, and our own backlog is way down," describes Kaltan. "So, as a result, we have enough people to assign to the limited number of projects."
A regional issue? According to Tucker, the construction labor shortages are "in pockets throughout the country." The 2001 CURT survey also indicates this situation, with most shortages reported in the Midwest, followed by the Northeast, the South, and the Southeast.
Redmon acknowledges that shortages for the pulp and paper industry have primarily been regional, with the lack of mobility described earlier as a possible contributing factor.
"Last year, we had pulp and paper jobs where we simply struggled from day one to find adequate labor, but it's kind of a spotty issue, even within a region," offers Redmon. "We have three major ongoing projects in North Alabama--two large power jobs and a fairly large chemical one--and I don't have problems hiring people. Were I to go into Northern Florida for power, pulp, paper, or other, it would be a different story.
Also, in a place like Houston, for example, there's enough work around that labor isn't a problem. But, we just had a job in Oklahoma for Weyerhaeuser, and it was a challenge to get people."
Redmon also describes state licensure requirements as another complicating factor. Certain states, such as Arkansas and Oklahoma, require crafts people to pass tests, which inhibits contractors from bringing in out-of-state personnel. However, CURT survey respondents did not indicate licensure as a major complication in staffing.
Addressing the problem. Many large construction contractors, such as KBR, Fluor Daniel, and BE&K, work with the NCCER to enhance the construction industry image by providing improved training. Founded in 1995 by contractors, the NCCER has compiled almost 150,000 pages of curriculum for use by contractors, associations, schools, and owners. "We're trying to address the training problem, but construction is a big, fragmented industry and the going is rather slow," says Bennett of NCCER.
In addition to its participation in NCCER programs, BE&K has also set up its own industrial school of construction for high school students, offering two years of high school credits and a job upon graduation. Also, through a series of testing and training, the company provides a career progression program for employees whereby wages are increased so that attrition is reduced.
"We believe all this training and certification will set us apart at the end of the day," says Redmon.
FUTURE COMPLICATING CONDITIONS. The CURT survey reported worker shortage impacts in every type of construction and maintenance project. Whether industrial or commercial, pulp and paper or petrochemical, no industry sector was immune. However, power plants and utility projects were most frequently cited as experiencing shortages, says Sizemore.
Throughout the U.S., there is currently an unprecedented amount of construction work going on with power co-generation facilities. According to Kaltan, this work will probably continue for the next three to four years. In addition, all of the nation's refineries must undergo modifications to meet new reduced sulfur and fuel requirements imposed by
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