Developers Face Higher Costs Amid Debate Over Construction Labor Shortage

Rule Change on Trade Apprenticeships Faces Criticism

SEPTEMBER 26, 2019|LINDA MOSS


Workers at the American Dream entertainment-and-shopping project site in East Rutherford in August last year. (Edwin J. Torres/New Jersey Governor's Office)

Unions, congressional lawmakers and some state attorneys general are criticizing a federal proposal to expand job training programs that could ease a U.S. shortage of construction workers that real estate developers say is driving up project costs.

In response to a 2017 executive order from President Trump, the Department of Labor has proposed a rule that would permit the creation of industry supervised and recognized apprenticeships. The amendment to the National Apprenticeship Act would allow third parties such as trade groups and employers to set up and run training initiatives. The goal is to create a more skilled workforce suited for today's marketplace shortages and to move the apprenticeship model to new kinds of growing businesses that need workers, such as healthcare and technology.


Proponents of expanding construction apprenticeships argue the initiative will address the dearth of these kinds of workers and help close the job gap, adding to the workforce pool for contractors and reducing their costs as well as those of developers. The lack of construction workers such as pipe layers, sheet metal workers, carpenters, concrete workers and pipe fitters/welders, as well as logistics employees, has hurt the commercial real estate business.


That's driving up development costs and hampering the expansion and profitability of warehouse and distribution centers, according to NAIOP, the national trade organization for the industry, which issued a report on the issue earlier this year.

But there is a debate on apprenticeship expansion, with opponents charging it would create a separate, and inadequate, certification system from existing programs, with poorly trained workers who could endanger themselves, others and do substandard work.


As the labor department proposal is written now, it excludes construction, an industry that has for decades had apprenticeship programs in place for trades such as plumbers and electricians. Those programs are registered with the labor department and are funded by unions and employers, as part of collective bargaining agreements.

But vehement organized labor critics of the proposed apprenticeship expansion, who are led by North America's Building Trades Unions, an AFL-CIO umbrella group, say they fear, because of "negative signals," the proposal will eventually be expanded to include the construction industry. That's because Labor Secretary Alexander Acosta, who was considered pro-union, resigned from his post this summer, and because the wording of the Trump administration says the construction industry would not "initially" be eligible for consideration under the proposed regulation change.


Parallel Programs

Organized labor maintains that if the apprenticeship expansion eventually encompasses construction, it will create a parallel apprenticeship system to the one that's been in place — and has worked — for generations. Opponents of the proposed changes also say having dual apprenticeship systems will undermine federal standards for such training programs, and it won't protect wages or safeguard the safety for those enrolled. Some expect that pay for apprentices will be less than it is under the current registered programs, just at minimum-wage level.

"I think that's the point," said Susan Schurman, a professor at the Rutgers School of Management and Labor Relations. "Labor costs are a huge part of construction."

Construction apprentices, depending on how far they are into their training, earn progressive union wages until they complete their instruction — both on-the-job and in training centers — as full-fledged "journey-level" workers and are paid full scale. Organized labor maintains this provides a path to the middle class for its members. Under the new industry-recognized apprenticeships, trainees would only have to be paid minimum wage.


Employing such apprentices would offer contractors a way to cut their labor costs, according to Schurman. But she, like other critics of the proposed labor rule changes, said she fears that the workers produced under the programs will not really be qualified or properly trained to do the work on-site, potentially creating safety hazards or leading to shoddy workmanship. That's because the new programs won't "have the level of rigor attached to them" as existing registered apprenticeships, Schurman said.

Only "time will tell" if that would lead to real estate developers and contractors cutting corners on projects by using apprentices whose training has been inadequate, according to Schurman.


Although NAIOP hasn't taken a position on the expansion of the apprenticeship program to construction, the commercial development organization has said the labor shortage is a critical problem for the real estate industry that needs to be addressed.

"Recent trends suggest that the construction and logistics industries cannot rely on the status quo to produce enough qualified workers to meet future demand," according to a NAIOP-commissioned 40-page report, "Addressing the Workforce Skills Gap in Construction and CRE-Related Trades."


Economic Boom, Labor Crunch

The report outlined some reasons for the labor shortage.

"Recent economic growth has been a boon to developers, owners and investors across the commercial real estate industry, but has also made it more difficult for contractors and warehouse operators to recruit and retain qualified workers," the report said.

Many employers are finding that recruiting and retaining workers has become challenging because of the nation's low unemployment rate, but "recent trends have contributed to more pronounced workforce shortages in construction and logistics than in other sectors," according to the report.


The construction industry, for example, hasn't recovered the workers it lost during the Great Recession, the report said. There's also been a decline in schools offering vocational education. And there's been "relatively limited interest in construction trades among millennials."


"The logistics industry faces a similarly limited pipeline for new workers while demand for employees in warehouse and distribution centers is growing rapidly," the report said.


This shortage means higher costs for developers. The NAIOP report cited an annual survey done by the Associated General Contractors of America, a national trade group for the construction industry, in conjunction with software firm Autodesk, regarding workforce availability. Survey respondents last year were asked if their firms were having more difficulty than during 2017 in filling any of 20 specific hourly craft positions or 10 salaried positions. A majority of respondents said positions were harder to fill than a year ago for all but one of the craft-personnel positions, adding that they were being forced to increase pay to draw workers.

  

Related News:   Labor Shortage Extends Its Effects on Construction Firms, Industry Survey Finds

"As a result of these activities to reduce the labor shortage, almost half of firms in August 2018 report they have put higher prices on their bids," the NAIOP report said, citing the survey.


In the survey, 44% reported that projects already underway have increased in cost because of labor shortages, 46% reported it takes longer than originally scheduled to complete projects, and 27% are putting longer completion times into their bids because of workforce shortages, according to the NAIOP report.


The labor department this summer solicited comments on the proposed apprenticeship changes and received more than 300,000 responses. More than 125 members of the U.S. House of Representatives and more than 40 U.S. senators, all Democrats, voiced their opposition, as did a coalition of 13 attorneys general from Connecticut, Delaware, Illinois, Iowa, Maine, Michigan, Minnesota, New Jersey, Oregon, Pennsylvania, Virginia, Washington and the District of Columbia.


The exclusion of the construction industry at this juncture has drawn cries from the contractors group as well as Associated Builders and Contractors, a national trade association that represents the nonunion construction industry.

"At a time when the vast majority of construction firms report having a hard time finding qualified workers to hire, it is deeply troubling that the Trump administration has opted to not include the sector in its new apprenticeship proposal," Stephen Sandherr, chief executive of the trade group, said in a statement. "Instead of opening new routes for many thousands of Americans to embark on high-paying construction careers, the administration has instead opted to exclude one of the largest single sectors of the economy from what is supposed to be their signature workforce initiative."


Openings Outstrip Demand

In its comment to the labor department, the group said there were 347,000 job openings in construction at the end of June, not seasonally adjusted, an increase of 24,000, or 7%, from June 2018, citing data from the Bureau of Labor Statistics.

"Reported shortages are impacting construction schedules and increasing the costs of many construction projects, posing a significant risk to future economic growth," Sandherr said in his comment. "Addressing construction workforce shortages is the best way to encourage continued economic growth, make it easier to rebuild aging infrastructure and place more young adults into high-paying jobs. It’s also evident that there is a need not only for more people in the industry, but, specifically, more well-trained people.


In its filing with the labor department, the Associated Builders and Contractors also argued that construction should not be exempt from having the new industry-recognized apprenticeships.


"There is no evidentiary support for the concern expressed in the proposal that apprenticeship expansion might somehow come “at the cost of existing registered apprenticeship programs," the group said. “ABC and its members strongly support registered apprenticeship as one training tool, and we anticipate such support will continue. ... That tool by itself has proved to be insufficient to meet the training needs of the construction industry. Recognition of alternative industry approved programs will expand the training pool, without weakening or detracting from registered apprenticeship programs."


By contrast, the North America trade unions coalition and its members blasted the proposed apprenticeship expansion.


"This historic number of nearly 325,000 comments submitted by working men and women across the United States makes it clear that construction workers don't want the federal government to cut wages and destroy jobs in a dangerous economic experiment," Sean McGarvey, the group's president, said in a statement. "The message from Michigan to Florida, from Pennsylvania to New Mexico was absolutely clear: They don't want the swamp to undermine their standard of living and the opportunity for future generations to realize the American Dream. These Americans voted for job creation, not lower wages. They voted to end the special interests' grip on government. They voted to strengthen communities long forgotten, not put public safety at risk."

McGarvey added that his members "do not stand alone," as "contractors, industry leaders, project owners, educators, safety and training professionals, investors, community advocates, faith leaders, environmental stewards, veterans, state apprenticeship agencies and overwhelming bipartisan majorities in Congress have spoken in one voice" against expanding the proposed apprenticeship changes to the construction industry.


Attorneys General Opposition

Schurman said that existing construction apprenticeships have structured programs and give workers "portable skills," which she worried may not be the case with the new types of apprenticeships.

"If you train as an apprentice in New Jersey, you can still be a plumber in Nebraska," she said.

Washington Attorney General Bob Ferguson led a coalition of his counterparts in 12 other states in a comment filed with the labor department opposed to the apprenticeship changes. In its statement, the group said under the proposed regulation change there would be no specific minimum requirements for instructor credentials, skills or on-the-job training hours or employment rates for apprentices.

The group also said the federal government would have little oversight and almost no enforcement of apprenticeship programs that fail to meet industry standards. "The Trump administration continues to put industry interests over the well-being of workers," Ferguson said in a statement. "This rule incentivizes low-quality apprenticeship programs and gives individuals almost no recourse for relief if they become stuck in a predatory program. The federal government should withdraw this rule immediately."

The attorneys general compared the potential repercussions of apprenticeship expansion to what they have seen in the for-profit college industry.

"Ferguson and other states have filed many lawsuits against predatory for-profit colleges that flourished under loose regulations and lax oversight," resulting in students losing millions of dollars, the group said in a statement.


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