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Report: Construction Productivity Fell by Half in Roughly the Last 50 Years

Productivity in the construction industry in the United States has fallen by about half since the 1960s, according to a report in The Economist:

Construction holds the dubious honour of having the lowest productivity gains of any industry, according to McKinsey, a consultancy. In the past 20 years the global average for the value-added per hour has inched up by 1% a year, about one-quarter the rate of growth in manufacturing. Trends in rich countries are especially bad. Over the same period Germany and Japan, paragons of industrial efficiency, have seen nearly no growth in construction productivity. In France and Italy productivity has fallen by one-sixth. In America, astonishingly, it has plunged by half since the late 1960s.

Prices for building materials are not to blame. They are subtracted from measures of value-added (and have not risen in any case). The burden over time of complying with regulation—applying for permits, for instance—is only partly responsible. In America such rules account for one-eighth of the productivity lost since 1987, according to the Bureau of Labour Statistics.

In many cases, the report notes, workers have replaced machinery on job sites with that trend only reversing in specific instances. That means construction has become less capital intensive. In many countries, it is far more cost effective to import workers than it would be to buy machines that could perform the same functions.

Since there is so much volatility in demand, it makes business sense to curtail investment so that companies do not end up with fixed costs that are hard to slash when times get tough. In other words, it’s easier to lay off workers than it would be to sell machines that are not being used.

Again from the report:

America now has about 730,000 building outfits, with an average of ten employees each. In Europe there are 3.3m with an average of just four workers. Competition is fierce and profit margins are thinner than for any industry except retail.

The full report from the Economist is here.