Construction Sector Outlook
2 RECENT TRENDS IN CONSTRUCTION EMPLOYMENT
This report provides an outlook for employment and activity in the construction industry. The focus is on the impact of the current downturn on construction employment, how soon we can expect to see a recovery in construction activity and whether the construction industry will be equipped to make best use of the recovery when it arrives.
This first chapter provides a summary of recent trends in construction employment. The rest of the report considers leading indicators of construction employment and activity, surveys of construction firms and recent commentary on the sector. Most of the analysis relates to building construction, as this accounts for most construction employment and there are a broad range of leading indicators for building construction activity.
2.1 Overview of construction employment
Construction employment has boomed over the past nine years, largely due to residential building construction and related work.
As at June 2009, the construction industry employed 181,100 people. This represented 8.3 percent of the total workforce. Over the past ten years construction employment has grown by 66 percent, making it the fastest growing industry over this period. Total employment growth in New Zealand was 25 percent.
This period of employment growth was related to a boom in property sales and construction activity. This boom has now subsided and New Zealand has experienced an economic downturn, connected to the global financial crisis.
The primary measure of construction employment used in this report is the Household Labour Force Survey (HLFS). This is New Zealand's official survey of employment and unemployment, and provides figures on a quarterly basis. However, Business Demography data and Census results are used when the HLFS results are not sufficiently detailed.
The report is focussed on the national level but it is useful to see where construction employment is concentrated around the country. Chart 2.1 highlights in red those Territorial Authorities with the highest proportion of their workforce (over 10.9 percent) in the construction sector in 2008. These areas are mostly situated near to the major cities (Rodney, Papakura, Kapiti Coast, Waimakariri) but Queenstown Lakes-District and Central Otago are also prominent, probably reflecting the popularity of holiday homes in those areas. The construction activity around the big cities reflects the ongoing growth of these cities, with people wanting homes within commuting range.
Chart 2.1 Percentage of total employment in the construction sector by territorial authority, 2008
Source: Business Demography data, Statistics New Zealand
Construction employment has more than doubled since 2000 in Queenstown-Lakes District, Central Otago and Waimakariri. The North Island has fewer areas where construction employment has grown so quickly, but Ruapehu, New Plymouth, Wanganui and Porirua City stand out. In the Auckland region the percentage growth of construction employment has been relatively low, but this is partly because of the higher baseline of employment there.
Table 2.1 shows employment by sub-industry within construction, and the rate of growth between 2000 and 2008.
|Construction Sub-industry||2000||2008||2000 to 2008 growth|
|Other Construction Services||4,500||10,910||142%|
|Residential Building Construction||8,490||19,990||135%|
|Building Structure Services||4,250||7,980||88%|
|Building Installation Services||17,740||28,660||62%|
|Land Development and Site Preparation Services||5,700||9,100||60%|
|Heavy and Civil Engineering Construction||17,510||27,780||59%|
|Building Completion Services||10,330||15,290||48%|
|Non-Residential Building Construction||7,530||10,930||45%|
Source: Business Demography data, Statistics New Zealand
Each of the construction sub-industries has seen substantial employment growth over the past eight years. Employment has more than doubled in residential building and 'other construction' (which includes landscape construction). Building structure services (which includes concreting, bricklaying and roofing services) has also seen very high growth of 88 percent. The sub-industry that employs the most people is building installation services (which includes electrical, plumbing and heating services), where employment has grown by 62 percent.
Most of construction employment is directly related to new buildings, or work on existing buildings. The exception is heavy and civil engineering, which includes construction of new roads and bridges. This report focuses on trends in building construction, and their likely impact on construction employment. However, a minority of construction employment (about a fifth), in heavy and civil engineering construction, is only indirectly affected by the level of building construction activity.
Table 2.2 shows the top twenty occupations within the construction industry according to the 2006 Census, and their rate of employment growth since 2001.
|Occupation||2001||2006||2001 to 2006 change|
|Builder (including Contractor)||13,557||21,057||55%|
|Bricklayer and/or Blocklayer||2,004||3,087||54%|
|Excavating Machine Operator||1,269||1,875||48%|
|Carpenter and/or Joiner||7,887||10,797||37%|
|Heavy Truck or Tanker Driver||2,526||3,093||22%|
|Painter, Decorator and/or Paperhanger||7,044||6,954||-1%|
Source: 2001 and 2006 Censuses, Statistics New Zealand
Builders represent 14 percent of all construction industry employment, and their numbers increased by 55 percent between 2001 and 2006. This was higher than employment growth for the industry as a whole, which was 42 percent. The highest growth occupations, which more than doubled their employment, were general labourers, landscape gardeners and construction managers. Administration managers also had high employment growth of 91 percent.
The only occupation within construction that did not experience employment growth was painter/decorators, where employment fell by 1 percent.
Tables 6.2 and 6.3 in the appendix present a detailed list of core construction occupations and show, for each one, the proportion of workers by age and highest qualification.
These tables show that the occupations with the highest concentration of youth were scaffolders and roofers, where nearly half of workers were aged under 30. Other occupations with about 40 percent of workers aged under 30 were steel fixers, insulators, spray painters, plasterers and general labourers. These are all towards the low skill end of construction work, and at least 30 percent of workers in each of these occupations had no qualifications. About half of machine operators had no qualifications.
Young workers and those with no qualifications tend to be the most vulnerable in difficult economic conditions. We would therefore expect employment in these occupations to be particularly sensitive to the level of construction activity, with employers being less motivated to hold on to these workers when there is little work.
The architectural and engineering occupations had the highest proportion of workers with degrees or higher. Employment in these occupations is likely to be most resilient. A recent report by the Department of Labour on the knowledge economy found that "Architectural, Engineering and Technical Services" qualified as a knowledge-intensive industry, and that employment in this area increased by 67 percent between 2000 and 2008.
Among trades workers the occupations with the most qualified workers include electrician, plumber, and fitter and turner. 78 percent of electricians have a post-school vocational qualification, while the figure is 70 percent for fitters and turners and 66 percent for plumbers.
At an aggregate level, workers in construction occupations differ from those in the wider economy in that on average they:
- have a slightly younger age profile
- are more likely to hold qualifications
- are less likely to have a degree or higher
- are less likely to be Asian
- are more likely to be born in New Zealand
- are much more likely to be male
Further information on the characteristics of workers in construction occupations is available from the Department of Labour's Skills Insight Tool:
2.2 How has employment been affected by the fall in construction activity?
Construction activity and employment have dipped since 2007, with trades workers being particularly affected.
Construction employment increased by more than 60 percent in the five years to June 2007. It has since fallen by 5 percent (from 190,000 persons employed to 181,000) but remains at historically high levels. This dramatic growth in construction employment was related to a boom in residential construction activity, which has now passed.
Construction employment is closely linked to the value of building activity. This is measured by the Quarterly Building Activity Survey (QBAS), which is a Statistics New Zealand postal survey of builders and owners.
Chart 2.2 shows annual average construction employment (on the right-hand axis) compared to the trend value of building activity at September 1999 prices.
The two series follow a similar trend, with the value of building activity leading employment by about a year and a half. The value of building activity increased by more than 50 percent from March 2001 to June 2005, while construction employment increased by more than 60 percent from December 2001 to December 2006.
After June 2005 the value of building activity remained fairly flat at this very high level, before declining throughout 2008. It fell by over a fifth (21 percent) between December 2007 and June 2009, down to its lowest level for seven years.
By contrast construction employment continued to rise until June 2007 and has only subsequently fallen by 5 percent. It has been steady at around 180,000 since June 2008.
Chart 2.2 Trend of quarterly building activity (Sep 1999 prices) compared to construction employment, 1998 to 2009
Source: Employment from HLFS, Work put in place from QBAS (Statistics NZ)
During the construction boom there were skills shortages in the construction industry and it is likely that there was a lag in the increase of employment until it reached a level where the industry could meet the increase in demand. Similarly there may now be a lag where people are reluctant to leave the industry as the value of building activity declines, and employers hesitate to lose skilled staff after struggling to recruit in previous years.
The Quarterly Employment Survey (QES) shows that the number of filled construction jobs in the June 2009 quarter had hardly fallen since the peak level reached in 2007. But the number of paid hours in the industry was down by 12 percent from its peak in the March 2008 quarter. The implication is that the construction industry has primarily dealt with the downturn in activity by reducing the number of average paid hours per worker, rather than losing workers. This allows employers to increase hours again when activity picks up, rather than have to recruit new staff who may be hard to find.
Although employment in the construction industry has held up relatively well the HLFS shows the number of employed trade workers has fallen by over 10 percent (down to 200,000) since the end of 2007, while the number of employed plant and machine operators is down by 4 percent (to 175,000). By contrast, employment amongst professionals (including architects, engineers and resource management planners) is up by 5 percent (to 375,000).
The Department of Labour's own detailed employment estimates by occupation are shown in table 2.3.
|Occupation||Employment in Dec 2007||Employment in Jun 2009||Change from Dec 2007 to Jun 2009||Projected annual net replacement demand|
|214 Architects, Engineers and Related Professionals||32,401||33,724||3%||0.8%|
|711 Building Frame and Related Trades Workers||64,270||58,689||-9%||0.7%|
|712 Building Finishers and Related Trades Workers||34,189||29,781||-13%||1.5%|
|841 Building and Related Workers||11,170||10,120||-9%||1.3%|
Source: Direct Estimates of Employment and Occupational Forecasts, Department of Labour
Total construction employment appears to have been supported by an increase in the numbers of employed professionals and labourers, which has compensated for the fall in the number of employed trades workers. Infrastructure projects are currently accounting for an increased share of construction activity, so labourers and engineers are required but there is a reduced demand for trades workers (such as electricians and plumbers). Infrastructure projects also support employment in occupations such as project managers, technicians, truck drivers and machine operators.
Table 2.3 also shows, in the final column, the estimated net replacement demand for these workers. This is the percentage of the workforce that is expected to leave each year, either due to retirement, career changes or migration away from New Zealand. They need to be replaced with either new entrants to the labour force, new migrants or persons in other occupations with the necessary skills to move into construction.
Decreased employment opportunities could be resulting in an increase in outward net migration of building trades workers. Chart 2.3 shows the migration flows since 1992 for trades workers in the construction sector. Arrivals have remained around a relatively high level of 1,500 per annum since 2004, but the past two years have seen departures rise above 2,000 per annum. Outward net migration peaked at 865 in 2008, before dropping slightly to 662 in 2009.
Chart 2.3 Annual permanent and long-term migration of building workers, June 1992 to June 2009
Source: International Travel and Migration, Statistics NZ
To summarise, there are two effects that may be working together to support construction employment during the trough in building construction activity. Firstly, firms are hoarding workers and reducing their hours rather than letting them go. Secondly, a reduction in the number of employed trades workers has been offset by ongoing employment growth for construction professionals and also labourers. This may be due to an increased emphasis within construction on infrastructure projects.
2.3 Impact of the downturn on construction apprentices
The Building and Construction Industry Training Organisation has seen a significant fall in the number of new apprentices.
The downturn has also had an impact on numbers of construction apprentices, who are vital to the future productivity of the sector.
Chart 2.4 shows that three years of growth in the number of Building and Construction Industry Training Organisation (BCITO) apprentices, from 2004 to 2007, was reversed in 2008 with the total number falling by 8 percent to 8,000. This was lower than the figure for the end of 2006, but still higher than the 2005 figure.
Chart 2.4: Total apprentices registered by the Building and Construction Industry Training Organisation (BCITO) as at December, 2004 to 2008
Figures for April 2009 show a fall from April 2008 of 18 percent, so the decline is continuing. Over 90 percent of BCITO apprentices are training in carpentry, but the number of BCITO apprentices in every trade fell over the year.
Chart 2.5 shows the percentage change in the number of apprentices by trade between April 2008 and April 2009. It is clear that the downturn in construction activity has had an impact on apprentices across the sector.
Chart 2.5 Percentage change in total number of apprentices in trades covered by the BCITO, April 2008 to April 2009
Chart 2.5 Percentage change in total number of apprentices in trades covered by the BCITO, April 2008 to April 2009
It is likely that some employers are holding on to existing trainees but not taking on new ones. New enrolments for BCITO were down by more than a half in the first quarter of 2009, compared to the first quarter of 2008. There has been a consistent pattern of year on year decline in enrolments since the third quarter of 2007. Given that apprenticeships take about four years to complete, there is a possibility of a significant shortfall of new apprentices qualifying in four or five years time when the industry is expected to have recovered and be in need of skilled workers.
 Annualised average figure from the Household Labour Force Survey (HLFS).
 Construction was the fastest growing industry of those recorded by the HLFS from March 2000 to March 2009. The HLFS uses one digit ANZSIC96 industry classifications.
 For this purpose we have used the Business Demography data, which is a database of employers held by Statistics New Zealand. HLFS data by industry is only reliable at the national level, due to the sample size.
 Business Demography statistics do not capture all small businesses, so they will under-count construction employment. The criteria for being included in the Business Demography statistics are shown on the following Statistics New Zealand webpage.
 The sub-industries shown in this table come from the ANZSIC06 classification scheme. Table 6.1 in the appendix shows the specific industries within each construction sector.
 To some extent, demand for new roads and bridges is related to the number of new buildings being constructed.
 These occupations come from the NZSCO99 classification scheme.
 Sourced from HLFS, using annual average data.
 Statistics NZ produce a trend series for value of building work put in place, which “removes the estimated impact of regular seasonal events and irregular short-term variation”.
 A regression analysis found that a lag of six quarters gave the closest relationship between the value of building activity and construction employment.
 Annual averages have been used to look at employment by occupational group.
 These occupations are from the 1999 New Zealand Standard Classification of Occupations (NZSCO99) scheme, at the 3 digit level.
 Building Frame Workers include builders, bricklayers, stonemasons and carpenters.
 Building Finishers include plasterers, glaziers, plumbers and painter/decorators.
 Building and Related Workers include drainlayers, pipe fitters, steel fixers, scaffolders, riggers and steel erectors.
 Migration flows by occupation need to be used with caution as this is not a compulsory field on the arrivals and departures card and answers have to be coded by Statistics New Zealand.
 The NZSCO99 occupations captured in this chart are “Building Frame and Related Trades Workers”, “Building Finishers and Related Trades Workers” and “Building and Related Workers”.