Everything to Know about Labor Shortage Risks

The meaning of Labor Shortage, causes and how to mitigate Labor Shortage Risks

What is Labor Shortages?

Labor shortages in construction refer to insufficient availability of skilled and unskilled labor needed to complete the construction projects. This issue can leads higher demand for labour in a limited supply, driving up the cost of labour, possible project delays and compromised quality of work due to the employment of less skilled workers.

What does Labor Shortages mean?

'Labor Shortages' means there is a deficit in the qualified workforce required to execute your construction project as planned. This scarcity can stem from a variety of economic, demographic, and educational factors and has significant implications for project timelines and costs.

Labor Shortages Example

An example of labor shortages in construction is a scenario where a major infrastructure project struggles to progress on schedule due to the unavailability of enough qualified crane operators and concrete workers. This shortage could force the project to hire less experienced workers, potentially affecting the quality and safety of the construction.

In 2008, it was widely reported that Dubai was home to a quarter of the world’s cranes. A good example of demand!

The History of Labor Shortages

Labor shortages have been a cyclic issue in the construction industry, influenced by economic booms and busts, shifts in demographic trends, and changes in industry attractiveness to the workforce. The issue has been exacerbated by aging populations in many developed countries and a declining interest in construction careers among younger generations. In countries like Australia that have a smaller population, labor shortages occur when restrictions are placed on migrant workers.

Causes of Labor Shortages

Labor shortages can be caused by several factors:

Aging Workforce: A significant portion of skilled labor reaching retirement age without enough younger workers entering the field.
Educational and Training Gaps: Insufficient vocational training programs or a mismatch between the skills taught and the industry’s needs.
Economic Fluctuations: Economic downturns that lead to layoffs, after which skilled workers may find employment in other industries.
Competitive Labor Markets: Strong demand for labor in other industries that offer better pay or working conditions.
Migration restrictions: Labour is not able to enter the market to meet demand.

Likelihood of Labor Shortages

The likelihood of labor shortages is increasingly high, particularly in regions with aging populations and where the construction industry competes with other sectors for skilled labor. Economic recovery periods can also see heightened risk as multiple sectors ramp up activity simultaneously. Best speak with your General Contractors about their view on current or forecast labor shortages and how they may affect your capital project.

Consequence / Impact of Labor Shortages

The impact of labor shortages can include delayed project timelines, increased wages / cost overruns, reduced productivity, and potentially lower quality of construction if less skilled workers are employed as substitutes.

Labor Shortages Clauses in Construction Contracts

Depending on your appetite to deal with this Risk, there are many types of construction contracts to choose from that address the responsibility of this risk differently. Within the contract's themselves there are generally no call-out clauses specifically for 'Labor' in standard form construction contracts, but there are mechanisms that control cost, time and changes to scope.

Mitigations and Treatments for Labor Shortages Risk

Effective mitigation and treatment strategies for labor shortages include:

More Budget / Contingency: Ensure contingency is available if labor shortages hit and increased wages are needed to attrack talent.
Workforce Development Programs: Investing in training and apprenticeship programs to develop a skilled workforce.
Enhanced Recruitment Efforts: Broadening recruitment efforts to include diverse demographics and geographies.
Retention Strategies: Implementing strategies to retain key personnel, such as competitive wages, benefits, and career development opportunities.
Technology and Automation: Adopting new technologies and automation to reduce the labor intensity of construction projects and increase efficiency.

Risk Management and Reporting of Market Condition Risks

As we've seen above, there are alot of considerations when it comes to Risk Management. Implementing Risk Management and Reporting controls will make managing this risk easy, and ensure success of your Capital Project.

Risk Management Plan: Download a free Risk Management Plan Template and put a Risk Management process in place.
Risk Register: Download a manual Risk Register Template or use an automated Risk Register solution to track all risks, causes, consquences and mitigations.
Reporting: Create automated Risk Reports, Project Status Reports or Dashboards for communicating with stakeholders. If you need a free Report Template, you can find some examples here.