And Then There Were None
Immigration Policy Impacts on Consstruction
Introduction
A cornerstone of the recent presidential election was to reduce illegal immigration. There are many issues, political and ethical, pro and con, that arise from that policy. For this article, let’s put those concerns aside and focus only on the impact these policies imply for labor market conditions facing the construction industry.
Construction Worker Shortfall
The construction industry is amid an ongoing labor shortage. The shortfall challenges project timelines, budgets, overall efficiency, and the level of overall construction activity. Tight supply becomes more acute during May through September, when the building season is at its peak. Last year, during these months unemployment in the construction industry ran 50 basis points lower than national unemployment (3.6% construction versus 4.1% national).
Adequate supplies of skilled tradesmen are among the scarcest. This includes electricians, plumbers and carpenters. While these areas are most scarce, the construction industry is multi-skilled dependent. Lacking adequate supply of labor in one area, even the least skilled, can holdup an entire construction project. Because undocumented workers account for a large portion of the workforce in some lesser skilled trades, immigration policies hold the potential of broadening the shortage of construction workers to include the so-called “unskilled”.
The reasons for the on-going shortage are multifaceted, but two factors are principal causes. First, many experienced trades people are reaching retirement age. Let’s face it, as you age it becomes increasingly difficult to perform physical tasks for long hours. Baby boomers account for 25% of the construction labor force. Retirements are a powerful factor reducing the construction labor force.
Second, this reduction in the construction workforce is not being replaced by subsequent generations to work in the trades. “Go to college” has been the mantra for graduating high schoolers for decades. This mindset has been successful in growing college enrollments to the detriment of enrollment in vocational training in preparation for the trades.
The labor construction shortfall in 2024 is estimated at 362,000 workers. With a slowdown in construction activity expected in the near term, the shortage is not expected to worsen significantly in 2025. That could change relatively soon. The Administration’s policy of tightening illegal immigration adds to supply challenges facing the construction industry. Immigration initiatives could ramp-up and hit full stride by next year. This could occur in tandem with the onset construction recovery – resulting in a significant worsening in the labor shortage facing the construction industry.
Statistics on the Undocumented & Construction
Because there is no documentation for illegal immigrants, precise numbers do not exist. According to various estimates, there are 11.8 million undocumented persons in the United States. The average household size is 1.4 persons. The three largest states with undocumented persons are California, Texas and Florida – each with over one million undocumented persons. Combined these states account for 42% of all undocumented persons. Among all undocumented persons, more than 70% are concentrated in 15 states.
Undocumented persons add to demand within the United States. The Joint Economic Committee (JEC) estimates that undocumented workers account for 5.5% to 6% of total spending in the US. The JEC also estimates that the undocumented pay more than $500 billion in federal, state, and local taxes.
Others suggest that undocumented persons weigh heavily on local government services. Chicago, for example, is a “sanctuary” city. It faces a $538 million budget deficit. According to budget figures, $200 million in spending, or 37% of the shortfall, is related to supporting illegal immigrants. Other large “sanctuary cities face similar fiscal challenges. Whatever costs are accrued to services afforded to undocumented workers; it is likely that the lion’s share are borne by the large sanctuary cities.
Undocumented persons account for roughly 8.3 million workers, or 4.3% of the labor force. They work in a wide array of jobs, but construction is the largest employer of undocumented workers (1.56 million), followed by hospitality workers (1.00 million) and agriculture workers (245,000).
Within the construction industry undocumented workers account for 19% of all workers. In some job functions such as drywall installers, roofers and painters, they account for more than one third of the entire estimated workforce for these positions. Concrete installers, masons, carpet installers and general laborers account for more than 20% of the entire estimated workforce for these trades.
Immigration Policy Impacts
The number of undocumented persons deported determines that magnitude of the impact on the economy and the construction industry. According to a survey of various studies, for every 1,000,000 undocumented immigrants deported, the GDP growth rate eventually declines by 100 basis points and the inflation rate runs 100 basis points higher.
The Administration has never made clear the targeted level of mass deportations on an annual basis through 2028. Furthermore, there is a difference between the ambition of mass deportations and the legal, fiscal and political realities of mass deportations.
To estimate the potential impacts of immigration policy on the construction, cement and concrete industries clear assumptions must be introduced into the analysis. No single assumption on the degree of deportations is defensible. As a result, three scenarios are offered. They include: 1) the Trump Lite scenario that reflects a relatively low level of deportations at 350,000 in 2025 and increasing by 100,000 in each subsequent year during his term. 2) the Trump Face Value scenario reflects an election promise of one million deportations in 2025. That level is maintained in each subsequent year, and 3) the Trump Baseline scenario that reflects 650,000 in 2025 and accelerates to one million by 2028.
Once deported, 46% of deportees return within one year. This implies that for every 100,000 undocumented immigrants deported, roughly 46,000 will return in a year – potentially resetting the whole deportation process. This is further supplemented with voluntary departures estimated at roughly 120,000 annually. Of these, 60% return in one year.
Totaling the deportations, voluntary departures and those that return through 2028, leaves an average annual reduction in illegal persons of 485,000 annually under the Trump Lite Scenario, 625,000 annually under the Baseline Scenario, and 725,000 annually under the Trump Face Value Scenario. Of these persons, not all work.
Taking all these factors into consideration, the impact on the United States labor force will occur slowly and steadily. By 2028, the labor force under Trump Face Value is reduced by 1.9 million workers. Under the Trump Lite Scenario, the labor force is reduced by 1.2 million workers. Under the Baseline Scenario the workforce is reduced by 1.6 million workers.
Construction Impacts
A large swath of jobs are unaffected by the policy. As a result, in aggregate, these reductions don’t imply significant reduction in unemployment or wage growth. While the national impacts may be muted, once you peal back the layers and realize that undocumented workers are concentrated in very specific jobs and industries, the impacts of deportations can be very significant to those industries. Three industries rely heavily on undocumented workers: construction, hospitality, and agriculture.
Roughly 8.3 million workers are employed in construction. Of these, nearly 1.6 million are undocumented workers. The jobs are typically concentrated among the lesser skilled trades. Within the construction industry undocumented drywall installers, roofers and painters account for more than one third of the entire estimated workforce for these positions. Undocumented concrete installers, masons, carpet installers and general laborers account for more than 20% of the entire estimated workforce for these positions.
To compensate for workforce gaps amid the ongoing labor shortage, construction companies often rely on overtime labor, and pay higher wages to attract workers. This adds to construction costs. The labor shortfall can also lead to a slowdown in construction activity due to delayed project completion, costly overruns and missed deadlines. Often extra lead time is required to plan for critically scare specialized work such as plumbing and electricity. In some cases, either because of cost or fear of contract penalties, builders forego project bids.
Considering only the impact of deportations, under the Trump Lite scenario the labor shortage facing the construction industry reaches more than 600,000 workers by 2028, nearly 700,000 under the Baseline Scenario, and 750,000 under the Trump Face Value Scenario. These estimates do not include the impact of added retirements or unexpected increases construction demand. If those were factored in, the labor shortages facing the construction industry range between 1.1 to 1.3 million by 2028.
What it means
The construction industry is multi-skilled dependent. Each individual trade adds to the entirety of the project. Lacking adequate staffing in one area can slowdown the entire project. Potentially, shortages among the unskilled undocumented dependent construction areas, can lead to the reduction in overall projects and employment among the skilled workers. The Administration’s policy of tightening illegal immigration adds to supply challenges facing the construction industry.
Currently, undocumented workers offer builders a capable workforce at a lower pay rate than documented construction workers. Reportedly, undocumented workers earn an average of $3 per hour less than documented workers. Some are paid under the table, reducing employment costs further. This all implies a huge potential benefit to builders.
Consider the construction of a new home. Based on Nation Association of Homebuilder data, the average home requires roughly 5,200 manhours to build. If the entire crew were undocumented, that translates into a savings of $16K per home. The entire crew won’t be undocumented – so the savings will be well less. Nevertheless, undocumented workers help relieve the labor shortage that characterizes the construction industry and can potentially lower the cost of construction.
This analysis can be applied more generally to the entire construction industry and could save the construction industry as much as $9.3 billion annually. Even if the assumptions used in this estimate are refined downward, the savings afforded the construction industry by undocumented workers is still very substantial.
The tighter the immigration policy, the costs of construction are increased and/or the margins for the builders are squeezed. Perhaps it is large enough for a builder to decide not to bid for a project. It could lead to a slowdown in construction activity.
Initially, all this is likely to begin in the context of high interest rates, a slowing economy, and a slackening in labor markets. Deportations will just be in the stage of ramping up. The impact will be muted. With the eventual decline in interest rates, however, construction activity will re-awaken. Once the mortgage rate dip below 5.5% construction activity will reach a level best described as a frenzy. That is expected to materialize in mid-2026 and beyond. At that time, the deportations will be in full swing, the economy’s strength is expected to be building, labor markets will strengthen, and construction markets could be running strong. The harshest impacts of immigration policy will likely materialize at that time. They will be substantial. Assuming an aggressive deportation policy endures, the labor shortage will be at the top of mind during 2027 and 2028.
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