Construction Productivity Improving?

Is construction a productive industry? Many industry experts would agree that there is a measurable lack of productivity that plagues the industry. While other industries, including manufacturing, have benefited from higher efficiency measures, the construction industry has suffered from a reputation of low productivity and innovation. When even a high-profile magazine like the Economist calls out problems, it’s clear that the subject causes a fair amount of anxiety. Despite having a market share of $10 trillion dollars (as of 2017) the industry has been slow to apply new practices, such as efficient project management and lean techniques to on-site execution, in order to capture potential trillions in increased market value.


One problem with this assessment, however, is that economists have had doubts about whether the statistical methods being applied to labor productivity in the construction industry were accurate. Most data up to now has suggested that the U.S. has lost productivity since around 1960. But new data from a study done by the U.S. Bureau of Labor Statistics shows that, contrary to popular belief, the industry has actually shown improvement.


What makes this study different? Most studies done on the subject have used statistical models that have not incorporated adequate deflators to measure the change of prices over time. Accurate deflators are necessary because data is being measured over the course of decades, which means that prices would have changed during the spans being studied as a result of inflation. Historically, the only deflator available was that for single family residential construction.


Of course, construction on a single family home does not compare to building a major tunnel through Boston, or rebuilding a major bridge artery over the Hudson. And, yet the same deflators were being used to determine productivity. Projects can vary in scale, materials, terrain, and types of labor workforce available. It’s also important to measure the quality of what’s being produced. While productivity could appear to be increasing, it’s possible that the quality of the finished product has decreased, which also affects statistical models.


This newest study presents new deflators, specific to different construction types, that show that productivity has actually increased in at least three of the four major construction sectors: single family residential construction; multifamily residential construction; industrial construction; and construction on highways, roads, and bridges, the latter of which showed a decline. The data shows that since 1987 productivity has increased 1.1% in single-family residential construction, increased 3.7% in multifamily residential construction, increased 5.3% in industrial construction, and has remained stagnant in highway, road, and bridge construction.


While this is a great leap forward, it’s important to acknowledge that there will always be problems calculating the correct models to use for tracking productivity in the construction industry. In some countries, informality can be a problem that affects the data in significant ways, and which will never be possible to measure. In other countries, bureaucracy and restrictions on the industry can heavily affect productivity. In the U.S. the use of subcontractors is a significant additional variable, as well as the use of undocumented labor, which by its nature is off the books and difficult, if not impossible, to measure.


The vast majority of construction users and contractors agree that tremendous opportunity for improvement still exists. Those companies that embrace “best practices” such as Advanced Work Packaging and Lean Construction methodologies have realized substantial, measurable productivity improvements. These methods, when rigorously implemented, can not only improve productivity but safety, quality, and schedule reliability performance as well.

 

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