Financial Times’ Matthew Klein has proposed an interesting alternative theory about the skilled labor shortage in the US that has impacted all sectors of the construction industry, but especially the residential market.
He posits that by looking at homebuilding data in Japan, the implication is that the US isn’t facing a labor shortage so much as it is dealing with sub-par productivity. Despite the fact that Japan’s population is less than 40% of US population, only 14% more homes have been built in the US since 1992.
Surely an aging society without a reservoir of cheap (and often illegal) immigrant labour would have fewer builders as a share of the labour force than a relatively youthful and foreigner-friendly country such as the US. Unsurprisingly, there has been a glut of articles over the past few years warning of “labour shortages” due to the combination of aging and falling immigration rates, with the implication that this has been restraining construction and inflating house prices.
Reality is the other way around. Despite radically different demographics and essentially no immigration, Japan has consistently employed a much larger share of its workers in the construction industry than the US, although the share has dropped over time. Even at the peak of America’s housing bubble, only about 5.5 per cent of workers were employed in construction. In Japan last year, more than 7 per cent of employees worked in construction — and that’s a lot lower than in the early 2000s…
Another way of putting all of this is that America built about the same number of housing units in 2016 as in 1992, but somehow required about 46 per cent more people to do it. Japan built 31 per cent fewer houses in 2016 than in 1992, but its construction workforce had fallen by 19 per cent. Productivity deteriorated in both countries, but productivity fell much further in America than in Japan.