New Research Sheds Light On New Zealand's Infrastructure Workforce And Drivers Of Construction Costs

Two new research papers from the New Zealand Infrastructure Commission, Te Waihanga, provide baseline information on New Zealand’s infrastructure workforce and show how global and local factors impact on labour and material costs in infrastructure construction.

Who’s working in infrastructure? A baseline report

This report provides the first comprehensive baseline analysis of New Zealand’s infrastructure workforce.

"You can’t plan for the future if you don’t have a sense of the size and make-up of your current workforce," says Te Waihanga Director of Economics Peter Nunns.

"We wanted to know how many people work in the infrastructure sector and what sort of work they’re doing. We also wanted to understand who’s working in infrastructure, so we looked at factors like age, ethnicity, gender, training, and migration.

"We found that the infrastructure workforce is large and complex, with over 100,000 full-time equivalent workers spread across more than 100 distinct occupations. That’s around 4.7% of the total New Zealand workforce," Nunns says.

"We often think about infrastructure work as mainly about new builds, but this actually accounts for less than half of the workforce. We estimate that around 14% of infrastructure workers are engaged in planning and design, 46% are constructing new assets, and a further 40% of infrastructure workers are engaged in asset management and maintenance. These roles are essential - you can’t build something without planning and designing it first, and once it’s built you have to maintain it."

The findings also shed light on who is working in infrastructure and the pathways that they follow into the workforce.

Ethnic diversity within the infrastructure workforce is similar to the overall New Zealand population, but the ethnic mix is uneven across occupational categories. For instance, labourer occupations have a higher-than-average share of Māori and Pacific workers, while professional occupations have a higher-than-average share of European and Asian workers.

Women account for only 11% of the total infrastructure workforce compared to around 47% of the overall New Zealand workforce. Moreover, younger age cohorts have a similar share of women as older age cohorts, suggesting that gender balance won’t change as older workers retire.

"This data will help us identify where we will face capacity pressures and how we can respond to them by sequencing work better and training and recruiting new workers. It also highlights increasing gender and ethnic diversity as a key opportunity for lifting our capacity to build infrastructure," says Nunns.

Why do construction input costs change? The role of global and local factors

A second paper published by Te Waihanga looks at past changes in construction wages and prices for five key infrastructure construction materials, shining a light on projects often cost more than expected.

"We analysed several decades of price data for construction inputs to understand how they are affected by both global and local factors," Nunns says.

"We found that infrastructure providers have limited control over their input prices. Price changes mostly reflect the impact of things that are happening outside of the New Zealand construction sector.

"For labour costs, we found that construction wages closely track wages elsewhere in the New Zealand economy. In the short term, high demand for construction workers can push wages a bit above this trend, but construction wages tend to return to trend within two years," Nunns says.

"Global factors are the primary driver of material prices, especially for traded commodities like structural steel, timber and diesel fuel. Changes in global prices flow through to New Zealand very quickly. Even when we produce or source some materials here, prices are still based on global markets," he adds.

"The exception is materials like concrete and aggregates that are too heavy to ship long distances. Regional factors, like limits on setting up new quarries near major projects, are likely to play a stronger role for those materials."

The findings of this report build upon earlier research by Te Waihanga that looks at infrastructure construction productivity and infrastructure delivery cost benchmarking.

"Understanding what drives infrastructure costs allows us to better plan and mitigate risks and get more infrastructure for the money we spend," Nunns says.

"While labour and material costs are hard to control, there are some levers we can pull. Infrastructure providers and decision-makers can focus on driving productivity in construction and optimising projects’ scope and design to ensure that we get the most bang for our buck."

Key findings from these reports

Who’s working in infrastructure? A baseline report

• In 2018, the infrastructure workforce included an estimated 108,000 full-time equivalent workers. This is around 4.7% of the overall New Zealand workforce. These workers are split evenly between ‘horizontal’ infrastructure like roads, water pipes, and electricity transmission, and ‘vertical’ infrastructure like schools and hospitals.
• Constructing new projects accounts for less than half of the workforce. We estimate that around 14% of infrastructure workers are engaged in planning and design, 46% are constructing new assets, and a further 40% of infrastructure workers are engaged in asset management and maintenance.
• Mobility from other sectors is more important for ‘blue collar’ roles and migration is more important for ‘white collar’ roles. Professional and technical occupations include a higher share of migrants. These occupations are more likely to have university qualifications. Machinery operators and drivers and labourers are less likely to be migrants, and more likely to have moved between industries in recent years.
• The infrastructure workforce is ethnically diverse, but women make up a small share of the workforce. The overall infrastructure workforce has a similar ethnic makeup to the New Zealand population, but ethnic mix is uneven across occupational categories. Only 11% of infrastructure workers are women. Female participation is only marginally higher among younger age cohorts, meaning that this pattern is unlikely to change as the workforce ages.

Why do construction input costs change? The role of global and local factors

• New Zealand economy-wide factors are important for understanding labour cost fluctuations but not material costs. Wages in construction track wages elsewhere in the economy. For material prices, we find little evidence that increased investment or strong economic conditions in New Zealand drive higher prices.
• Global factors play a significant role in material price fluctuations but not labour costs. Key material prices are correlated across countries, particularly for tradeable materials. Global commodity prices are highly predictive of our material prices, especially for structural steel, timber, and diesel fuel. Conversely, construction wages in New Zealand do not appear to be affected by Australian construction or economy-wide wages.
• Prices for both materials and labour adjust quickly. When construction wage growth is faster or slower than economy-wide wage growth, the gap is closed within a couple of years, rather than decades. For materials, changes in global prices are reflected in New Zealand prices almost instantly.
• Industry-specific factors play a modest role for labour costs and a possible role in material prices. An especially tight labour market for construction workers may drive modestly higher construction wages temporarily, but not in the long run, as higher wages draw in more workers. For materials, local or industry-specific costs like transport costs or regional demand could put pressure on prices.

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