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The No. 1 business issue for home builders, remodelers, and land developers continues to be access to skilled labor. According to NAHB analysis of Bureau of Labor Statistics (BLS) data, as of April of this year there were 404,000 open construction sector positions. Not only is this level of unfilled jobs in the construction industry at a post–Great Recession high, the current estimate is the highest ever reading for this data series, which runs back two decades.

The tracking of the construction sector open rate clearly shows that after a brief pause during 2017, the intensity of the labor shortage among builders grew more intense during 2018 and 2019. In fact, as a share of industry employment, for the past two years the open rate has been above the peak rate registered during the building boom.

While the construction sector was one of the first sectors to recognize the challenges with attracting and retaining skilled labor, the labor shortage is a broad-based economic concern. For example, the current total count of open, unfilled positions exceeds the number of unemployed individuals in the United States. As of April 2019, there were 7.4 million open jobs. In contrast, there were only 5.9 million unemployed.

The industry challenges of the shortage are well understood: higher costs, project delays, and lower output. Solving the challenge will take industry-wide efforts, through national organizations (such as the NAHB and the Home Builders Institute) as well as local builder and industry associations.

However, consider the macroeconomic perspective. One of the reasons the Federal Reserve had been projecting a series of rate hikes during 2019 was that standard economic theory indicates that a tight labor market should raise wages and ultimately produce inflation. While producers—and certainly builders—report higher labor costs, inflation remains relatively tame. In April 2019, the year-over-year gain in core PCE (personal consumption expenditures), the central bank’s preferred measure of inflation, was only 1.6%. This is well below the Fed’s target rate of 2%.

What is missing? Productivity or gains for output per worker. Weakness in labor productivity (the “skilled” element) has been notable since the Great Recession. For example, during the 1990s, productivity gains averaged 2.2% per year. During the 2000–2007 period, productivity growth improved on an average basis to 2.7%. Since the recession, productivity gains through 2018 averaged only 1.3%.

These declines have an important microeconomic impact. Wage growth in a sector is ultimately limited by productivity gains. If, to attract new workers, wages are required by supply and demand to rise faster than productivity growth, such hiring does not take place. This reduces industry output. Construction has experienced this situation, for which productivity has been flat since 1993. (This is also why, as some critics have incorrectly suggested, wages cannot simply just rise faster to attract new construction workers).

In 2019, the Fed seems to have finally accepted that the economy is not overheating despite low unemployment rates and high counts of open jobs. Rather than sparking inflation and requiring high interest rates, the current situation calls for classic supply-side economics solutions. Lower tax rates and lower interest rates will spark additional business investment, which will in turn attract workers and raise productivity.