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Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
Global Construction Outlook: Wage Growth, Labor Shortages and Implications
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Global Construction Outlook: Wage Growth, Labor Shortages and Implications

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According to a 2012 industry survey, 34 percent of employers reported difficulty filling jobs, up from 30 percent of employers in 2009. In addition, many countries are experiencing double-digit wage …

According to a 2012 industry survey, 34 percent of employers reported difficulty filling jobs, up from 30 percent of employers in 2009. In addition, many countries are experiencing double-digit wage growth, resulting in cost overruns, project delays, and cancellations.

Understanding the drivers of wage growth can allow cost estimators to identify potential skills shortages and plan accordingly. Join this 1-hour webcast where IHS Economists will analyze the current labor market and provide insights to help you understand current and future pressures.

The presentation will answer questions, including:

- What are the primary drivers of wage growth?
- What does the future hold for these wage drivers?
- Which regions will experience the greatest inflation rates?
- What industries will experience the most CAPEX growth?
- Where can you expect strong wage growth?
- What is the global labor cost outlook?

A recording of this presentation can be viewed here: http://www.slideshare.net/ihs_supplychain/ihs-webcast-global-construction-outlook-wage-growth-labor-shortages-and-implications

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  • 1. Global Construction Outlook: Wage Growth, Labor Shortages and Implications August 27, 2013 Welcome to Today’s Webcast
  • 2. Copyright © 2013 IHS Inc. All Rights Reserved Before We Get Started • Ask questions any time • Type questions into the “Ask a Question” area, click ‘submit’ • The slides advance automatically throughout the event • Need help? Click the Help(?) icon below 2
  • 3. Copyright © 2013 IHS Inc. All Rights Reserved Live Tweet Today’s Webcast: #IHSWebcast Join the Conversation: Follow @IHS4SupplyChain on Twitter 3
  • 4. Copyright © 2013 IHS Inc. All Rights Reserved We Want Your Feedback on Today’s Topics 4 Everyone completing the entire survey at the conclusion of today’s live event will be entered into a drawing to win a 4
  • 5. Copyright © 2013 IHS Inc. All Rights Reserved 5 Today’s Speakers Emily Crowley Economist, Pricing and Purchasing Service, IHS Emily Crowley is an economist in IHS’s Pricing and Purchasing group. She is a graduate of the George Washington University, where she earned a B.A. in economics and international affairs with a concentration in international economics. She currently works in the North American labor division, specializing in wages and assisting in the Global Manufacturing and Global Construction Compensation reports.
  • 6. Copyright © 2013 IHS Inc. All Rights Reserved 6 Today’s Speakers Laura Hodges Director, Pricing and Purchasing Service, IHS Laura Hodges is the director of IHS’s Pricing and Purchasing Service. She covers the analysis and forecasts of global labor and healthcare costs. She is also responsible for the management and operations of the pricing research team. She has worked for IHS for more than 15 years. She received her M.A. in Health and Labor Economics from Duke University. She also received her MBA from Rutgers University in Beijing, China and her B.A. in economics from the George Washington University. She has spoken extensively on the topic of global cost environment, including a recent presentation at the Institute of Supply Management (Has China Lost Its Low-Cost Edge?) and the Association for the Advancement of Cost Engineering conference (Economic Risks To Consider Before Bidding Your Next Contract and Estimating Skilled Labor Shortages).
  • 7. Skilled Labour Shortage Myth or Reality? Laura Hodges, Director, Pricing and Purchasing Service Emily Crowley, Economist, Pricing and Purchasing Service Tuesday, August 27, 2013
  • 8. Copyright © 2013 IHS Inc. All Rights Reserved Agenda • Where are we now? • What are the primary drivers of wage growth? • What does the future hold for these wage drivers? • Two hotspots - United States and Canada • How are they dealing with it? • Where else can you expect strong wage growth? • The global labor cost outlook 8
  • 9. Copyright © 2013 IHS Inc. All Rights Reserved What do we mean by skilled labor? • Skilled laborers – occupations that require advanced training, several years of on the job experience, certification • Welders, Pipefitters, Electricians, Boilermakers… 9 Source: Bureau of Labor Statistics; IHS Construction Wage Outlook, March 2013 8% 2% 28% 13% 49% Share of Employment 23% 3% 31%9% 34% Share of Wage Bill Project Manager Engineering Skilled Trades Office & Admin Unskilled US Construction Sector By Employment
  • 10. Copyright © 2013 IHS Inc. All Rights Reserved Where are we now? • According to a Manpower survey, in 2012 34% of employers reported difficulty filling jobs, up from 30% of employers in 2009 but down from 41% in 2007 • Skilled trades tops the talent shortage list in 2012 • Some countries are experiencing double digit wage growth due to shortages resulting in cost overruns, project delays, and cancellations • Understanding the drivers of wage growth can allow cost estimators identify potential skills shortages and plan accordingly 10
  • 11. Copyright © 2013 IHS Inc. All Rights Reserved Where are we now? 15 25 35 45 55 65 2006 2007 2008 2009 2010 2011 2012 Current Shortages Not Yet at Pre-Recession Levels (Percent of firms reporting difficulty filling jobs) Global Americas APAC EMEA 11 Source: 2012 Manpower Talent Shortage Survey
  • 12. Copyright © 2013 IHS Inc. All Rights Reserved What drives wage escalation? • Inflation • Sets floor for wage growth • Understanding the inflationary environment can be key to identifying strengthening fundamentals; an indicator of labor shortages • Supply/Demand Balance • Labor market fundamentals are the key determinant of real wage growth • Shifting dynamics between available supply and changing demand will influence which party has the upper hand in negotiations 12
  • 13. Copyright © 2013 IHS Inc. All Rights Reserved Inflation is a key wage determinant 0 5 10 15 20 25 30 35 40 2006 2007 2008 2009 2010 2011 2012 Strong Inflation Can Mask Fundamental Weakness (Growth, percent change) Wage Growth, Venezuela Inflation Growth, Venezuela 13 Source: IHS Construction Wage Outlook, March 2013
  • 14. Copyright © 2013 IHS Inc. All Rights Reserved 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Germany Canada United States Australia Peru China Brazil South Africa Inflation Expectations Vary by Country (Average growth rate, percent) 2006-2012 2013-2022 Other countries struggle with inflation too 14 Source: IHS June 2013 Forecast
  • 15. Copyright © 2013 IHS Inc. All Rights Reserved What drives demand? • Project investment • Primary driver of skilled labor demand • Fuelled by business cycles, commodity prices, global demand • Labor requirements • The type and size of the project will determine construction labor requirements including size of labor force and skill demand • Productivity • Has potential to offset demand growth • Can vary by project • Employment pull from other sectors 15
  • 16. Copyright © 2013 IHS Inc. All Rights Reserved Global demand remains robust 16 Source: IHS 2013Q1 Forecast – oil and gas CAPEX only -15 -5 5 15 25 35 0 250 500 750 1,000 1,250 2004 2006 2008 2010 2012 2014 2016 CAPEX Drives Demand Global CAPEX Spending (Billions, USD) Pre-Recession Peak CAPEX Growth (Right axis, percent change)
  • 17. Copyright © 2013 IHS Inc. All Rights Reserved Strong CAPEX is driving labor demand • CAPEX spending in 2012 was 30% higher than pre- recession spending • CAPEX growth will continue to drive labor demand with continued positive growth led by investment in the unconventional oil and gas sector • Unconventional projects have higher skilled labor requirements, increasing base labor demand • But projects in remote locations do mean a smaller labor force • New technology will limit near-term productivity growth, projects down the road benefit 17
  • 18. Copyright © 2013 IHS Inc. All Rights Reserved Pay attention to regional differences 0 2 4 6 8 10 12 14 16 18 Demand Will Vary By Region (Growth, percent change) CAPEX growth 2007-2012 CAPEX growth 2013-2016 18 Source: IHS 2013Q1 Forecast – oil and gas CAPEX only
  • 19. Copyright © 2013 IHS Inc. All Rights Reserved Supply is the last key determinant • Size of available labor force • How large is the labor force • Demographic trends • Unemployment rate • Measure of labor force availability • Indicator of supply/demand fundamentals • Return on Investment (ROI) • Measures the return associated with: • Entering the skilled labor force (factors in cost of training/certification) • Staying in the skilled labor force vs. retiring • Regulations, immigration polices 19
  • 20. Copyright © 2013 IHS Inc. All Rights Reserved Unemployment as a measure of tightness 20 • Comparing current unemployment levels to the 5-year average can be used as an indicator of labor market tightness • Unemployment in emerging economies is below the five year average • These economies have strong construction activity linked to infrastructure development, residential, and commercial projects • Unemployment below the 5 year benchmark should raise a red-flag for potential shortages 2013 2008-2012 2003-2007 Australia 5.6 5.1 5.1 Brazil 5.5 6.8 10.6 Canada 7.1 7.4 6.8 China 4.1 4.2 4.2 Germany 6.9 7.5 10.5 Peru 6.3 7.8 9.1 South Africa 25.1 24.3 26.4 United States 7.6 8.3 5.2 Labor Markets Tighter in Emerging Economies Unemployment Rate Source: IHS June 2013 Forecast
  • 21. Copyright © 2013 IHS Inc. All Rights Reserved 21 -5% 0% 5% 10% 15% 20% 25% 30% 35% Africa & Middle East Latin America Asia-Pacific Excl. China North America Europe China Demographics Will Determine Long-Term Labor Force Trend (Labor force growth 2012-2025) Demographics will play a role in the future
  • 22. Copyright © 2013 IHS Inc. All Rights Reserved The US Gulf Coast – An emerging hotspot • Demand remains strong • High oil prices continue • Shale gas encourages other projects - IHS Chemicals estimates that the downstream projects will deliver $100 billion in CAPEX over the next decade • Supply has tightened • Attrition from the construction industry during the recession combined with a drop in apprenticeship enrollments means supply has tightened • Wage growth among skilled professions will increase in the 5% range per year through 2016 22
  • 23. Copyright © 2013 IHS Inc. All Rights Reserved The US Gulf Coast – An emerging hotspot • Construction employment in USGC is 4% below 2006 levels compared to 30% below nationally • Growth stagnated for vocational programs • More progress on college education 23 -4% -30% -50% -40% -30% -20% -10% 0% 10% Gulf Coast Has Tightest Construction Labor Market (Percentage of workforce lost, 2006-May 2013) Gulf Coast US 4,000 4,500 5,000 5,500 6,000 People 25 years and over who completed a two-year vocational program (thousands)
  • 24. Copyright © 2013 IHS Inc. All Rights Reserved Workers are available in parts of the US 24 Ratio of Current to Peak Construction Employment Below 50% Greater than 50% Greater than 60% Greater than 70% Greater than 80% Greater than 90% The middle part of the country is tighter
  • 25. Copyright © 2013 IHS Inc. All Rights Reserved Demographics will play a role in the future 25 US Skilled Workforce is Aging 2000 2010 2000 2010 Welders 38.4 40.9 30% 40% Pipefitters 38.9 41.4 28% 40% Electricians 39.2 41.5 31% 41% Average 38.8 41.3 30% 40% Source: Bureau of Labor Statistics Current Population Survey Average Age Share of Workforce Over 45 The picture is the same for many industrialized countries, including Japan, Germany, and the UK
  • 26. Copyright © 2013 IHS Inc. All Rights Reserved US regional variation is important 26 • An unemployment rate of less than 4% signals potential shortages • Presence of oil market does not guarantee a tight market • Almost all regions listed are below the 5-year average • Particularly Odessa • Training should be an option in regions with higher unemployment April 2013 5-year average Bismarck, ND 3.1 3.4 Midland, TX 3.0 4.3 Odessa, TX 3.7 5.9 Casper, WY 4.3 5.5 Baton Rouge, LA 5.9 6.3 Lafayette, LA 4.6 5.0 Lake Charles, LA 5.6 6.0 Shreveport, LA 6.6 6.4 Pascagoula, MS 9.0 9.2 Bakersfield, CA 12.1 13.7 TOTAL 7.6 8.3 US Unemployment Rates - Top Oil Towns Source: Bureau of Labor Statistics
  • 27. Copyright © 2013 IHS Inc. All Rights Reserved Canada Oil Sands – A cooling hotspot ? • Development of the Alberta oil sands has driven up CAPEX spending, which has averaged 8.2% growth per year over the past decade • Remote project locations and their large labor requirements pushed unemployment to the lowest level in Canada • Supporting an average construction wage growth of 5.5% over the past six years • Programs to bring in temporary foreign workers (TFWs) as well as train Canadians to fill gaps is helping to alleviate shortages 27
  • 28. Copyright © 2013 IHS Inc. All Rights Reserved Canada Oil Sands – A cooling hotspot ? 0 20 40 60 80 2008 2009 2010 2011 2012 Skilled & Tech Positions filled by TFWs (Thousands) Canada excl. Alberta Alberta 0 250 500 750 1000 1250 2007 2008 2009 2010 Change In Apprenticeship Training (Completions compared to Prior Year) Heavy equip mechanics Welders Electricians • Alberta accounted for 50% of Temporary Foreign Workers (TFWs) in Canada in 2012 compared to 30% in 2009 • Apprenticeship completions increased by 1,200 in 2010 compared to 700 in 2008 28
  • 29. Copyright © 2013 IHS Inc. All Rights Reserved Where are potential shortages in the future? Countries At Risk for Labor Shortage Shortage Indonesia Peru Brazil, Chile, China, India, Mexico, Norway, South Africa, Thailand, Turkey Australia, Canada, Colombia, Russia, Venezuela Germany, United Kingdom, United States Poland Based upon the last 3-year environment for employment growth, unemployment, CAPEX growth and education Not A Problem What does this mean? We selected 20 countries from around the world and compiled estimates on employment, unemployment, CAPEX and education in each of these countries. Further we looked at the experience over the last three years for each of these components and compared to the average to understand if labor market conditions were tight in this country. Watch out for new projects in Indonesia or Peru! 29
  • 30. Copyright © 2013 IHS Inc. All Rights Reserved Where are potential shortages in the future? Indonesia • The fourth largest country (in terms of population) • But only 20-25% of population with higher education • Low and falling unemployment rate • Strong investment and economic growth Peru • Strong investment growth (40% in last three years) • Country is rich in natural resources, particularly minerals • Falling unemployment rate and small labor force 30
  • 31. Copyright © 2013 IHS Inc. All Rights Reserved The global wage outlook 31 Skilled Trade Wage Growth Rates by Country 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007-2012 2013-2016 Canada 3.7 8.3 3.9 2.7 1.2 2.9 3.1 2.8 3.4 3.4 3.8 3.2 United States 12.2 4.8 -0.3 2.4 -1.5 2.4 3.7 4.5 5.1 4.5 3.3 4.4 Brazil 4.6 8.5 7.6 13.5 9.1 11.7 7.6 10.6 10.3 8.3 9.2 9.2 Peru -1.2 8.1 2.1 8.0 4.6 5.5 6.6 7.7 7.9 6.4 4.5 7.2 Germany 1.5 2.5 3.8 2.4 1.8 3.2 2.0 1.7 2.4 3.2 2.5 2.3 Russia 24.4 44.5 -0.3 24.1 6.9 11.7 7.2 11.2 9.9 9.8 18.6 9.5 Australia 4.7 4.9 4.7 3.7 5.2 5.1 4.5 4.5 4.9 4.9 4.7 4.7 China 13.0 13.0 13.0 15.0 18.0 11.0 12.0 12.0 12.0 12.0 13.8 12.0 Indonesia 7.4 9.3 4.8 5.4 12.0 11.9 10.0 10.6 10.7 10.4 8.5 10.4 South Africa 10.3 15.3 15.3 22.1 7.7 11.3 12.0 12.0 12.1 12.7 13.7 12.2 Source: IHS Global Construction Wage Study Strongest real wage growth for Brazil, China, Indonesia, Peru and Russia
  • 32. Copyright © 2013 IHS Inc. All Rights Reserved Why is the outlook benign for US and Canada? • Nationally demand trends are not as robust • We need to look at the regional and sector trends to pick up on that activity and labor market tightness • We are not back to the situation of the 2007/8 boom • Employers are cautious – they want a qualified worker, not just any worker • Not all countries and sectors are in full cycle • Workers may be harder to find in some regions but if you are willing to pay to move, they are available • Demographics and supply are a future risk 32
  • 33. Copyright © 2013 IHS Inc. All Rights Reserved What can be done to help with shortages? • Recruiting more aggressively in countries with less demand – and there are a few right now! • Explore off-site construction options, such as prefabrication and modular construction, to reduce local labor demand • Invest in training and/or establish local training programs to address the skills gaps in the workforce • Offering higher supplemental pay to avoid locking into higher base pay 33
  • 34. Copyright © 2013 IHS Inc. All Rights Reserved Conclusion • Sourcing skilled workers can be difficult and expensive – but shortages are regional • Watch supply, demand and inflation measures to understand where wages are heading • CAPEX is a major determinant • The Canadian Oil Sands region and the US Gulf Coast have struggled with availability of skilled workers • Canada has eased foreign worker restrictions • Red flags should also be raised for Indonesia and Peru • Finding qualified and skilled workers will be a challenge • Be prepared and monitor these key drivers to understand current and future pressures 34
  • 35. Copyright © 2013 IHS Inc. All Rights Reserved  Pinpoint the primary drivers of commodity prices  Recognize buying opportunities  Mitigate risk by understanding commodity market fundamentals  Negotiate purchases more effectively  Identify risky suppliers and ensure continuity of supply 35 Learn More www.ihs.com/Chicago2013 Participate in group discussions, network, and acquire techniques to help you:
  • 36. Copyright © 2013 IHS Inc. All Rights Reserved Thank you! Laura Hodges – laura.hodges@ihs.com Emily Crowley – emily.crowley@ihs.com 36
  • 37. Copyright © 2013 IHS Inc. All Rights Reserved 37 We Want Your Feedback on Today’s Topics Everyone completing the entire survey at the conclusion of today’s live event will be entered into a drawing to win a 37
  • 38. Copyright © 2013 IHS Inc. All Rights Reserved Subscribe to Weekly Pricing Pulse Newsletter… *Offer limited to qualified entities until August 31, 2013. How to Subscribe? Recommended for all attendees… 38
  • 39. Copyright © 2013 IHS Inc. All Rights Reserved For More Information Send questions and requests for information to: Webcasts@ihs.com Visit IHS.com/PricingPurchasing for more information 39

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