Analyzing the Skilled Labor Shortage: Perceptions and Impact by Firm Size

On the tail­winds of mate­r­i­al delays that plagued the con­struc­tion indus­try after COVID-19, anoth­er per­sis­tent chal­lenge has tak­en cen­ter stage: the skilled labor short­age. A top­ic of ris­ing inter­est and con­cern, this short­age has prompt­ed exten­sive research to bet­ter under­stand its sever­i­ty and impli­ca­tions for con­trac­tors and the over­all finan­cial out­look for the industry. 

Our researchers at the Home Improve­ment Research Insti­tute have been mon­i­tor­ing the impli­ca­tions of the skilled labor short­age since 2017. In the sec­ond quar­ter of 2023, HIRI con­duct­ed a com­pre­hen­sive sur­vey that involved more than 550 con­trac­tors. The sur­vey results pro­vide valu­able insights into the rela­tion­ship between labor avail­abil­i­ty, eco­nom­ic con­di­tions and con­trac­tors’ respons­es to these challenges.

Here’s what we found:

Skilled Labor Shortage: Perception vs. Reality

A stag­ger­ing 73% of sur­vey respon­dents stat­ed that there is a labor short­age with­in the con­struc­tion indus­try. How­ev­er, only 42% of these respon­dents actu­al­ly stat­ed a short­age of labor with­in their own com­pa­nies. Dave King, HIRI’s Exec­u­tive Direc­tor, not­ed that this reveals the industry’s wide­spread per­cep­tion that labor short­ages are affect­ing every­body, while the num­ber of firms affect­ed in real­i­ty may be much lower. 

HIRI research also uncov­ered a cor­re­la­tion between the per­ceived labor short­age and firm size. Con­trac­tors at larg­er com­pa­nies expressed height­ened con­cerns about labor avail­abil­i­ty, reflect­ing the chal­lenges they face in man­ag­ing the right project load to remain prof­itable. Con­verse­ly, work­ers at small­er firms, with their tight-knit oper­a­tions, tend­ed to feel the impacts of the short­age less acute­ly because they have more options in their busi­ness to coun­ter­act per­ceived and real labor shortages.

Contractor Response to Labor Shortages

Large or small, the ways con­tract­ing firms adapt to labor short­ages paint a vivid pic­ture of the industry’s resilience. When con­front­ed with work­force lim­i­ta­tions, var­i­ous meth­ods come to the forefront:

• 53% take few­er total projects, allow­ing them to allo­cate their lim­it­ed labor resources more effectively.

• 43% turn to time-sav­ing prod­ucts that can help expe­dite project com­ple­tion with­out com­pro­mis­ing quality.

• 41% spe­cial­ize in a nar­row­er range of projects, focus­ing on areas where their exper­tise and work­force can be maximized.

• 40% selec­tive­ly pur­sue high­er-pay­ing projects, bal­anc­ing prof­itabil­i­ty with the avail­able labor pool.

• 36% nar­row their geo­graph­ic focus to man­age projects with­in a more con­cen­trat­ed area.

• 29% intro­duce train­ing and appren­tice­ship pro­grams to cul­ti­vate a skilled labor force.

How Manufacturers and Retailers Can Help

This data reveals oppor­tu­ni­ties for retail­ers and man­u­fac­tur­ers of home improve­ment prod­ucts to enhance busi­ness rela­tion­ships with con­trac­tors and pro­vide valu­able sup­port amid labor short­age challenges. 

Some strate­gies deployed include:

1. Pro­mot­ing time-sav­ing products

2. Devel­op­ing spe­cial­ized kits, mate­ri­als and tools

3. Offer­ing edu­ca­tion­al resources, work­shops and training

By tai­lor­ing offer­ings to address con­trac­tors’ needs, retail­ers and man­u­fac­tur­ers can improve col­lab­o­ra­tion with the pros and fos­ter stronger brand loyalty.

Impact of Contractor’s Firm Size on Financial Outlook

The impact of labor short­ages on con­trac­tors’ finan­cial out­look varies con­sid­er­ably based on the size of their firms.

Firms with less than $1 million in annual revenue:

• 66% of these small­er firms antic­i­pate a decline in rev­enue if infla­tion were to reach 10% in 2023 and beyond.

• Only 25% report­ed a reduc­tion in bid requests, high­light­ing the con­tin­u­ing demand for pro­fes­sion­al trade services.

• Job sizes for these firms have remained steady overall.

Firms with $1 million+ in annual revenue:

• Despite their size, 54% of these firms still antic­i­pate a decline in rev­enue if infla­tion reach­es 10% in the upcom­ing year.

• 50% of these firms saw an increase in bid oppor­tu­ni­ties over the past 12 months.

• Job sizes are grow­ing for 50% of these larg­er firms. Fur­ther­more, 33% report job sizes have remained con­sis­tent with those in 2022.

Top Business Concerns Across the Industry

Regard­less of firm size, two sig­nif­i­cant con­cerns loom large among contractors.

1. Mate­r­i­al avail­abil­i­ty and pric­ing con­cerns: Con­sis­tent­ly since 2021, at least half of con­trac­tors have report­ed mate­r­i­al avail­abil­i­ty and mate­r­i­al pric­ing as their top con­cerns. Labor chal­lenges have tak­en less share of mind for con­trac­tors in com­par­i­son to mate­r­i­al challenges. 

2. Eco­nom­ic uncer­tain­ty: As lev­els of con­sumer uncer­tain­ty fluc­tu­ate, Pros’ lev­el of busi­ness cer­tain­ty will follow. 

Navigating the Future

While chal­lenges per­sist, the strate­gies employed by con­trac­tors to adapt to labor short­ages and oth­er con­cerns rein­force the industry’s abil­i­ty to inno­vate and per­se­vere. Align­ing your offer­ings with the con­cerns of Pro cus­tomers is a require­ment to main­tain your cur­rent mar­ket share and then gain mar­ket share from com­peti­tors that are slow to respond to Pros’ top challenges.

Want to learn more about the skilled labor short­age, about con­cerns among pro­fes­sion­als and about finan­cial out­looks for firms of vary­ing sizes? Join HIRI as a mem­ber for full access to all of the reports (and the full data sets) ref­er­enced in this article.