AbstractLabor costs constitute a significant portion of construction costs. Reliable forecasts provide insight into the movements of labor costs and are critical to the success of projects. Past studies have primarily focused on forecasting construction cost indexes or material costs. Only a few studies have concentrated on forecasting construction labor costs. This study presents a multivariate Bayesian structural time series (MBSTS) model to characterize the future values of construction labor’s average hourly earnings (AHE) using a set of candidate predictors. The methodologies commonly used by past studies do not adequately address the uncertainties associated with the modeling process. In contrast, MBSTS recognizes the uncertainty in its modeling process, which enables practitioners to quantify and account for future labor cost risks in decisions. Furthermore, the MBSTS method results in a transparent model, helping analysts investigate the rationality of the parameters. This article trains MBSTS models under four different data subset lengths (i.e., 150, 144, 138, and 132 months) to study the consistency of the explanatory variables and their corresponding coefficients. The analysis results indicate that the gross domestic product (GDP), housing starts (HS), number of building permits (BP), Construction Cost Index (CCI), Dow Jones Industrial Average (DJI), and Standard and Poor’s 500 index (SPI) are the most frequently used predictors in the regression component of the MBSTS models. The results indicate an inverse relationship between AHE from one side and HS and BP from the other. Likewise, a direct relationship exists between AHE and GDP, CCI, DJI, and SPI. The MBSTS model performed well on the validation subset in the midrange prediction intervals (i.e., 12- and 18-month periods). However, it was outperformed by conventional time series models [i.e., seasonal autoregressive integrated moving average (SARIMA)] when used for short-term forecasting. The proposed framework can be applied to facilitate monetary resource allocation in projects.

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