Construction’s Productivity Decline

by Paul Deffenbaugh | 1 March 2023 12:00 am

Now the issue has hit a broader audience. In a Feb. 5 column for the New York Times[1], Ezra Klein writes about a recent study by two economists from the University of Chicago Booth School of Business. Austen Goolsbee (who was recently appointed chair of the Chicago Federal Reserve) and Chad Syverson have produced a paper titled, “The Strange and Awful Path of Productivity in the U.S. Construction Sector.”[2]

The productivity of a worker reduces the requirements for more work. Shouldn’t productivity be measured over the life of the building and not just its construction?

It’s a provocative title and it attempts to address some of the concerns about previous studies, such as whether we are mismeasuring the labor or material inputs, and how much we build with them. In other words, are we correctly measuring the amount of steel that goes into a building, and are we correctly measuring how much building that steel constructs?

There are a lot of variables in this study, but the biggest issue I see (and I am not an economist, so please take my observations advisedly) is that they use the wrong metric to measure productivity. For Goolsbee and Syverson, the measure boils down to square footage. Are we building more with less?

I see several problems with this metric:

1. Quality improvements. Today’s buildings and homes are more sophisticated, giving each square foot greater value. Solar panels, ground-source heat pumps, high-efficiency HVAC, home-run water systems, improved insulation and vapor barriers are all an increased investment that pays off over time.

2. Increased complication of construction. CADD and BIM programs give architects the ability to create incredibly sophisticated designs that couldn’t be built 50 years ago. Soaring interior spaces and complicated exterior façades don’t add to square footage but do add to the value of the building and are part of a worker’s productivity.

3. Growth of the renovation market. Renovation of existing structures is more costly per square foot than construction of new structures. Last year, architectural billings for renovation exceeded new construction for the first time. As our building and housing stock ages, we are spending more to repurpose, repair and improve it instead of building new. That would drive productivity down.

4. Value of reduced maintenance and repair. With improvement in building materials and construction techniques, contemporary structures need less maintenance and repair than older buildings. So, the productivity of a worker reduces the requirements for more work. Shouldn’t productivity be measured over the life of the building and not just its construction?

5. Labor cost of increased safety. Improved safety protocols tend to slow workers. For example, fall arrest systems, while sophisticated, reduce productivity. They take time to set up and slow the pace of construction. But the number of workers injured or killed on the job site has plummeted over the years. Shouldn’t productivity measurements include the impact on society of workers going offline due to injury or death?

6. Price-based competition. The construction industry has always been a bid-based business where the winner often offers the lowest price. That incentivizes companies to cut corners, which requires more oversight. There is a disincentive in the industry to be more productive.

7. Skilled labor shortage. For the last 30 years, there has been a shortage of skilled labor. Boomers aged out of the 18- to 32-year-old cohort that formed the backbone of the labor supply, and Gen-Xers were unable to fill those spots, which were then occupied by immigrant labor. Simultaneously, society decided every kid needed to go to college–even the ones who shouldn’t go to college. Most economists I know say recent industry growth was hampered by a lack of available labor.

8. Slow adoption of building technology. Even though building materials and techniques have improved over the last few decades, the industry is notoriously slow to adopt new building technologies. The reason is simple: the liability is too high. If an architect specifies a new product that then fails, the entire building needs to be retrofitted and the lawyers will line up in droves. It’s hard to improve efficiency without improved technology.

There is enough doubt on the measurement of productivity to give us pause about drawing conclusions. Still, there is a huge opportunity to improve productivity in the industry. Modular construction is one way, and increased job-site technology is another avenue.

Source URL: https://www.metalconstructionnews.com/articles/constructions-productivity-decline/

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