Construction Self-Employment Rates Exceed 23%

High self-employment rates reflect a common practice of builders and remodelers to maintain relatively small payrolls and rely on subcontractors for a large share of construction work

Self Empl Ts

According to the 2016 ACS, over 23% of construction workers are self-employed, while an economy-wide average does not reach 10% of the employed labor force. The high self-employment rates in construction reflect a common practice of builders and remodelers to maintain relatively small payrolls and rely on subcontractors for a large share of the construction work.

During the housing downturn, construction self-employment increased from 24% in 2006 to more than 26% in 2010. It is likely that builders and remodelers who were no longer able to maintain a steady work flow may have tried to manage costs by eliminating payroll positions and joining the ranks of the self-employed. It is also possible that some construction employees laid off during the downturn were able to stay in the industry by striking out on their own. The share of self-employed workers in construction peaked in 2010, exceeding 26%.

The opposite hiring trends emerged once the housing industry started its slow climb out of the cyclical trough. The construction industry has been adding payroll jobs since 2011, while the number of self-employed construction workers continued dwindling until 2015. Consequently, the self-employment rates reversed their course in 2011 and fell close to 23% in recent years.

The ACS data show that from 2011 to 2016 construction gained close to 1.2 million (20%) private payroll jobs but the pool of self-employed workers grew by about 100,000 (5%). This helps explain why builders have reported more extreme labor and subcontractor shortages than commonly cited numbers based only on payroll employment suggest.

S Eshare St16Many states, where home building accounts for a higher share of the labor force, also register higher shares of self-employed. Notably, Maine, Montana and Vermont have the highest shares of self-employed construction workers in the nation, with more than a third of their construction workforce being self-employed. The share of self-employed reaches 40% in Maine, 37% in Montana, and 35% in Vermont.

The New England states are where it takes the longest time to build a house. Because of the short construction season and longer times to complete a project, specialty trade contractors in these states have fewer workers on their payrolls. The 2012 Economic Census data show that specialty trade contractors in Montana, Maine, Rhode Island, Vermont, Idaho, New Hampshire have the smallest payrolls in the nation with 5 to 6 workers, on average. Whereas, the national average is close to 9 workers. As a result, a greater share of work is done by independent entrepreneurs, thus explaining high self-employment shares in these states that go together with elevated shares of residential construction workers in local labor force. Nevertheless, with the exception of Montana, these high shares are below the self-employment peak levels these states registered in the midst of the severe housing downturn.