Managing construction labor risk with TACL

What is Total Available Construction Labor (TACL)?

Total Available Construction Labor (TACL), created by Road Dog Jobs, is a measure of how constrained the construction labor market is. TACL subtracts the number of open construction jobs from the number of unemployed construction workers to determine how many workers are still unemployed if all open jobs were filled.

In other words, TACL is a construction specific measure of whether there’s a labor shortage. In addition, TACL can quantify how severe a labor shortage is, which makes it a valuable risk management tool for construction companies.

When TACL is greater than zero, it means there are more unemployed workers than there are open jobs.

When TACL is less than zero, it means there are more open jobs than unemployed workers.

 

Why did Road Dog Jobs create Total Available Construction Labor (TACL)?

At Road Dog Jobs we created TACL out of frustration with existing labor data. The problem was that the Bureau of Labor Statistics (BLS) data points weren’t telling a story. There was no concise way to look at construction labor data and determine what was really happening in the labor market.

We talk to industry participants every day. Most people in the industry could all feel the labor market tightening. There just wasn’t a way to prove it with data.

For example, with the BLS reports construction jobs growth of, say, 100,000 people in a month, what did that mean? We wanted to better understand what the data points were telling us. This led us to create TACL.

TACL turns data points into a story. Even better, it puts information at your fingertips to improve your labor risk management and decision making. TACL gives you the ability to better understand how tight the labor market is, what the trend is and helps you understand the labor risk your projects are taking on.

 

How to use TACL as part of your labor risk management

Individual pieces of labor data don’t tell a full story. To understand what’s really happening in the construction labor market, it takes putting several data points together.

TACL requires three (3) data points to calculate: total employment, unemployment rate, and open jobs. To calculate TACL we use non-seasonally adjusted rates for consistency – something we’ve explained in a previous article.

By putting the full picture of the labor market into one metric you’re getting a comprehensive story on the construction market. There are several ways that savvy operators can put TACL to work.

• Determine if there is a construction labor shortage? TACL shows how many people are available for work. When that number drops below zero there are not enough unemployed workers to fill open jobs. This is a quantifiable measure of whether there’s a labor shortage in the industry.
• If so, determine how severe is the shortage? All construction labor shortages are not equal. Some are more severe than others. TACL allows you to understand when the industry is entering a constrained labor market (TACL < 300,000), when the market is entering a shortage (TACL < 100,000) and when the industry is in crisis (TACL < 0).
• Evaluate future labor risk. TACL can be used for trending. You can use TACL to model future conditions and evaluate the labor risk on your projects. Overlay a forecasted TACL trendline with the future dates of your projects – whether bidding or executing – and determine what level of labor risk you have.
• Serve as contractual benchmark for labor risk transfer. TACL is a neutral look at the construction labor market. As labor conditions tighten, construction companies are going to start looking for contractual clarifications shifting risk to the owners. Owners will be looking to keep risk with construction companies. By coming to an agreed up on benchmark of TACL, construction companies and owners can agree on a trigger point where labor risk shifts from one party to the other.

 

What are the critical levels of TACL to watch for?

The easiest way to use TACL in risk management is understanding how severe the labor shortage is. For example, anytime TACL is less than zero, the market is under significant pressure.  Here are the Total Available Construction Labor (TACL) levels to watch.

• Greater than 500,000. Very little to no concern about the labor market. Historically this is the average TACL for construction since the year 2000.
• 500,000 to 300,000. Slight concern. Time to start watching the direction of the labor market.
• 300,000 to 100,000. These levels are close to labor shortage and it’s time to start preparing contingency plans.
• Less than 100,000. This is a labor shortage. Finding labor will be a challenge, as the number moves to zero – or lower – the challenge in finding people will get harder and harder.

 

How is Total Available Construction Labor (TACL) calculated?

TACL is a simple equation that uses non-seasonally adjusted employment, unemployment rate and open jobs.

• TACL is a monthly metric. Select the month you want to calculate. You need all three pieces of information to do the calculation. Job opening data lags about a month behind employment and unemployment.
• Start with total employment. We use non-seasonally adjusted employment because A) represents the most accurate employment in a particular months and B) because unemployment rate is not seasonally adjusted by the BLS.
• Find unemployment rate. Using the same month’s data, find the unemployment rate.
• Calculate the Total Workforce. The employment number from above represents the employed workforce. The unemployment rate includes a percentage of people above and beyond the employed workforce who are not currently working. To find the total number of employed AND unemployed workers, take [Total Employment] *divided by* [1 – Unemployment Rate]. Use a decimal for unemployment rate, so instead of 6% use 0.06. This number gives you the Total Workforce including both employed and unemployed construction workers
• Find open jobs. Find the latest data on open jobs in construction.
• Find Total Available Construction Labor (TACL). It’s straight subtraction from here. [Total Workforce] – [Total Employment] – [Open Jobs] = Total Available Construction Labor (TACL).

 

What is TACL telling us about today’s construction labor market?

Based on data from the BLS, we can measure TACL going back to the year 2000. TACL shows that since the year 2000, construction labor conditions have never been more constrained.

This means we can compare today’s TACL with 2006 and 2007 when construction employment peaked, and the industry was white hot. During those peak years, labor was difficult to come by. Still, when we look back at TACL from the five peak months (May through September) in 2006 and 2007, the average TACL over those ten months was still 316,000.

The average in 2021 for the same months (May through September) was just 121,000. That’s a 62% reduction in construction worker availability in 2021 from the industry’s peak employment years.

This step change reduction in worker availability in construction is a culmination of demographic change in the industry, insufficient job growth post financial-crisis, and poor retention of existing workers in the industry. Taken together, the construction labor market is in a fragile situation. The industry will need to replenish the ranks of its workers before future growth can occur.