We are all familiar with presentations bemoaning the archaic nature of the construction industry. Something radical must be done! The story is that the construction industry has experienced decades of stagnant productivity growth, at least in the US. There has been some push back. Output measures have been questioned. Metrics that allocate benefits associated with prefabrication shifts to the manufacturing sector are questioned. But the story remains the same. Construction productivity stubbornly lags all other industries. A recent study by the US Bureau of Labor Statistics throws a wrench into that narrative machine. (https://www.bls.gov/opub/mlr/2018/article/measuring-productivity-growth-in-construction.htm)
Behind this story and the debate it has engendered lies a unique fact – the absence of an official governmental labor productivity index for construction. As a result, independent studies that found conflicting findings often contributed to the debate.
Why is measuring construction industry productivity so challenging?
Accurate measures of construction industry productivity are difficult for multiple reasons. First, there is the complexity of the industry. Construction involves the production of vastly different types of projects, ranging from single family homes to industrial petrochemical facilities to roads and bridges. It is not appropriate to develop a singular measure of output for such different types of work. Second, the inflation indexes used to measure real output in construction have numerous problems ranging from the challenge to accurately account for the changes in the quality of construction output (the projects we build today are in many ways technically different than projects we built decades ago) to a lack of appropriate price deflators for certain sectors of construction.
Through its Monthly Labor Review, the U.S. Bureau of Labor Statistics (BLS) recently released results of new industry productivity measures that shed new light on construction productivity. The BLS have developed revised estimates of construction labor productivity for four construction sectors: single family residential construction; multifamily residential construction, highways, roads, and bridges construction; and industry construction. This work has largely been a result of the BLS efforts in producing construction specific Producer Price Indices (PPI), which mirrors the way it developed price deflators for other industries. Prior to this effort, a mixed bag of hedonic price indices and input cost indices were used to measure construction real output with great concern about their accuracies. A significant result of this work are new labor productivity indices for construction that have been developed using the same processes that the BLS used to develop labor productivity indices for other industries.
What do the new results say?
The new measures of productivity find that three of the four construction industry sectors experienced positive and relatively strong growth. From 1987 to 2016, the BLS reports that labor productivity in single-family construction increased at an annual average rate of 1.1% per year while construction productivity of multi-family housing increased at 3.7%. Of the four construction industry sectors, industrial construction was observed to have the strongest productivity improvement at 5.3%, which was monitored from 2006 to 2016 (Figure 1). While not negative, productivity in highway construction was observed to be stagnant.
Why is this important?
Even though these more reliable productivity growth measures help to answer the decades-long debate, there is still much work to be done. While these four construction industry sector measures are the most significant and accurate industry productivity measures developed to date, productivity metrics are still needed for other construction sectors, most notably commercial construction. In addition, these productivity measures need to become sustained and continuously calculated just as labor productivity is continuously measured for other industries. The size and importance of the industry to the overall health of the U.S. economy warrants these efforts. Furthermore, how can the accuracy of these measures be further improved? Regardless, the four productivity sector measures allow the industry to finally compare its performance to other industries.
Perhaps most importantly, measuring the performance among these four construction sectors poses new questions that need to be answered. Why did industrial construction productivity experience such significant and impressive improvement? Are there lessons in the use of different construction methods, technologies, and processes in industrial construction that can be used to improve other construction sectors? Alternatively, why has productivity in the highway construction sector been stagnant? With discussions of increasing funding in infrastructure construction, this is a question that needs to be answered sooner rather than later.
Finally, reliable construction industry productivity measures are essential, since they help the industry plan, control, and assess productivity improvement efforts, let it be in research, development, deployment, or training. Accurate productivity measures help the industry better understand where investments are most needed to improve the overall industry’s productivity. While there has been passionate debate about productivity trends, there has always been agreement that there is still a lot of room for improvement. We all want to see sustained construction productivity growth.