Here’s why the housing recovery hasn’t led to a hiring boom

April 8, 2013

In recent months, economists have been puzzling over a bizarre fact about the recovery. The U.S. housing market is rebounding rapidly — the number of new units being built is up 28 percent over the past year. But construction jobs have grown at a much slower pace, up just 3.8 percent over the same time frame. How can that be?


(Kevin Lamarque/Reuters)

My colleague Neil Irwin wrote about this odd paradox last month, noting that "labor hoarding" was one likely explanation. Construction firms don't like firing workers during downturns — especially if those workers are expensive to hire and train. And so, many companies held onto their workers after the housing bubble burst in 2007 and simply waited for a rebound.

There were still a lot of construction layoffs during the recession — at least 1.4 million all told. But the job losses never seemed to match the scale of the drop in construction activity, which would explain why we haven't seen job gains that match the pace of the housing recovery over the past year.

But now here's another twist to the story. Jed Kolko, chief economist of Trulia, points out that the total of construction workers in the United States is actually still quite high by historical standards:

Back in the early 2000s, before the housing bubble took off, the number of construction jobs per housing unit under construction tended to hover around 2.6. It's at about 3.7 today.

There are a few exceptions where labor markets have become tight — Washington, D.C., Denver, Seattle, San Francisco. In fact, some areas are now suffering from shortages of skilled laborers, from carpenters to roofers to plumbers. "But these markets are the exceptions," Kolko writes. "In most of the country, employment relative to construction activity is high now compared with the bubble and pre-bubble years."

So what does this all mean? If the U.S. housing market continues to grow, that should mean new construction jobs, but the pace will continue to be relatively sluggish. Goldman Sachs estimates that a 14 percent rise in residential investment spending will translate into just 350,000 new construction jobs this year — or about 30,000 per month.

That will certainly help chip away at unemployment, but to put that in context, the Congressional Budget Office expects that the sequester will cost more than twice that many jobs this year.

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Neil Irwin · April 8, 2013