Washington, D.C., September 18, 2025
News Summary
Small construction firms are increasingly struggling due to labor shortages and rising material costs, leading to reduced project backlogs. While larger firms continue to thrive, industry experts note that these challenges create significant disparities within the construction sector. The decline in nonresidential construction spending, coupled with lingering impacts from the COVID-19 pandemic, has resulted in a pressing need for effective workforce development and immigration reform to revitalize the industry.
Washington, D.C. – Labor shortages and rising material costs are posing significant challenges for small construction firms, particularly those with annual revenues under $30 million. This troubling trend has become evident as the construction backlog fell in August, indicating a widening gap between smaller contractors and their larger counterparts, who boast revenues exceeding $100 million and continue to expand their project pipelines.
Anirban Basu, the chief economist of the Associated Builders and Contractors (ABC), noted that the decline in backlog is closely tied to an ongoing decrease in spending on nonresidential construction. While backlog in sectors such as heavy industry and infrastructure has remained stable, commercial and institutional projects have seen their backlog decrease by nearly one month, now averaging a mere 8.3 months.
This decline in private construction work has been attributed to several interlinked factors, including soaring material costs, political and policy uncertainties, and notably, surging labor shortages. In fact, around 25% of contractors have reported that tariffs have led to significant project disruptions, resulting in delays or cancellations.
Despite a stable level of contractor confidence, the uncertainty caused by various economic headwinds complicates the industry’s future outlook. During the recent Elevate 2025 conference, which focused on addressing workforce issues in construction, industry leaders underscored that the current workforce crisis is a national security threat. Panel discussions highlighted the importance of immigration reform and targeted recruitment strategies for veterans and women to help alleviate labor shortages in this critical sector.
Labor Secretary Lori Chavez-DeRemer emphasized the necessity of establishing accessible immigration systems for companies that rely on foreign workers. Alarmingly, many veterans depart from their initial civilian jobs within a year, revealing a pressing need for collaborative retention strategies across the construction industry. Notably, only 10% of construction firms take advantage of temporary work visa programs, hindering their ability to alleviate labor shortages effectively.
A recent survey by the Associated General Contractors (AGC) disclosed that a staggering 92% of construction firms face challenges in finding qualified workers, leading to project delays. Labour shortages are now considered the primary reason for such delays, with 78% of firms reporting setbacks in the past year. The prolonged timelines due to these labor shortages have resulted in a striking annual economic impact of approximately $10.8 billion for the construction industry.
The sector faced further setbacks during the COVID-19 pandemic, which resulted in the loss of nearly one million jobs. Unfortunately, many of those workers have not returned to the industry. The reliance on undocumented immigrant labor has compounded construction delays and budget overruns, as nearly half of construction firms report that inadequate leadership is driving women out of the industry. There is an urgent demand for role models and career support to encourage their participation.
As of the end of July, the number of open construction jobs surged by 26%, reaching the highest level seen in over a year. In response to the ongoing labor crisis, the construction industry is investing in workforce development and technology initiatives to mitigate these shortages. Additionally, the AGC is advocating for increased funding for vocational education endeavors to address long-term workforce issues in construction.
Frequently Asked Questions
Why are small construction firms struggling compared to larger companies?
Small construction firms are facing significant challenges due to labor shortages and rising material costs, causing a decline in project backlog and limiting their ability to compete with larger firms that continue to expand.
What has caused the decline in backlog for these firms?
The decline in backlog is attributed to ongoing decreases in nonresidential construction spending, rising material costs, and a resurgence of labor shortages.
What impact do labor shortages have on the construction industry?
Labor shortages are the primary cause of project delays, leading to increased timelines and an annual economic impact estimated at $10.8 billion for the construction industry.
What measures are being taken to address labor shortages?
Industry leaders are advocating for immigration reform and targeted recruitment, as well as investing in workforce development and technology initiatives to alleviate labor shortages.
Key Features of Current Construction Industry Challenges
| Feature | Details |
|---|---|
| Labor Shortages | 92% of firms report difficulty finding qualified workers. |
| Project Delays | 78% of firms have experienced project delays in the past year. |
| Economic Impact | Annual economic impact of labor shortages is approximately $10.8 billion. |
| Workforce Development | Increased focus on vocational education and training initiatives. |
| Immigration Policy | Calls for reform to help address workforce recruitment needs. |
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Additional Resources
- Construction Dive: Labor Crisis as National Security Issue
- Scotsman Guide: Labor Shortages and Immigration Crackdowns
- AZoBuild: Article on Construction
- Wikipedia: Construction Industry
- Axios: Trump and Immigration Impact on Construction
- Google Search: Construction Labor Shortage
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