Fed Economists Cite Construction Job Loss

Two economists from the Federal Reserve Bank of St. Louis have estimated that the construction industry may account for as much as 40 percent of the total recession unemployment. 

In a paper posted by the bank on Nov. 4, Juan Sanchez and Daniel Thornton wrote: "From the beginning of  the recession (December 2007) to the trough in total employment (February 2010), total nonfarm employment declined by 8.7 million jobs, while construction employment declined by nearly 2 million jobs— 22 percent of the total. Hence, construction alone accounts for much of the decline in employment since the start of the recession.

"These construction numbers, even though high, likely underestimate the importance of construction in explaining the slow growth in employment for at least two reasons. First, as the chart shows, the peak in construction employment occurred in April 2006, well in advance of the recession and near the time house prices and residential investment peaked.

"By the start of the recession, construction employment had already declined by nearly a quarter million jobs from its peak; this number could be added to the decline in construction employment attributed to the recession.

"Second, the numbers in the figure reflect only the direct effect of the decline in construction employment and not the indirect  effects that caused a slump in employment in other industries. We estimate these indirect effects using the Employment Requirements Matrix of the Bureau of Labor Statistics.2 Assuming that about 1 million construction jobs were lost when the real estate bubble burst, we estimate that nearly 800,000 additional jobs were lost in other industries as a consequence. Hence, the decline in construction accounts for nearly 40 percent of the total decline in employment between December 2007 and February 2010." 

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