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Why Construction Industry Productivity is Declining

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  • Steven G. Allen

Abstract

According to unpublished data compiled by BLS, productivity in the construction industry reached a peak in 1968 and, except for a brief and small upturn between 1974 and 1976, has been falling ever since. This paper examines the sources of this productivity decline between 1968 and 1978 by estimating a production function to assign weights to various factors responsible for productivity change and deriving a new price deflator for construction which does not rely on labor or material cost indexes, thus eliminating a systematic bias toward overstating the rate of growth of prices.The production function analysis indicates that productivity should have declined by 8.8 percent between 1968 and 1978,representing 41 percent of the observed decline. The biggest factor in this decline was the reduction in skilled labor intensity resulting from a shift in the mix of output from largescale commercial, industrial, and institutional projects to single-family houses. Other important factors include declines in the average number of employees per establishment, capital-labor ratio, percent union, and the average age of workers. The difference between the official deflator and the new deflator proposed here accounts for an additional 51 percent of the reported productivity decline, leaving only 8 percent of the decline unexplained.

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  • Steven G. Allen, 1985. "Why Construction Industry Productivity is Declining," NBER Working Papers 1555, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1555
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    1. Stokes, H Kemble, Jr, 1981. "An Examination of the Productivity Decline in the Construction Industry," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 459-502, November.
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    Cited by:

    1. Peter Harrison, 2007. "Can Measurement Error Explain the Weakness of Productivity Growth in the Canadian Construction Industry?," CSLS Research Reports 2007-01, Centre for the Study of Living Standards.
    2. Andreas Hornstein & Per Krusell, 1996. "Can Technology Improvements Cause Productivity Slowdowns?," NBER Chapters,in: NBER Macroeconomics Annual 1996, Volume 11, pages 209-276 National Bureau of Economic Research, Inc.
    3. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
    4. Ben Dolman & Dean Parham & Simon Zheng, 2007. "Can Australia Match US Productivity Performance?," Staff Working Papers 0703, Productivity Commission, Government of Australia.
    5. Andrew Sharpe, 2001. "Productivity Trends in the Construction Sector in Canada: A Case of Lagging Technical Progress," International Productivity Monitor, Centre for the Study of Living Standards, vol. 3, pages 52-68, Fall.
    6. Centre for the Study of Living Standards, 2001. "Productivity Trends in the Construction Sector in Canada: A Case of Lagging Technical Progress," CSLS Research Reports 01cp, Centre for the Study of Living Standards.
    7. Steven G. Allen, 1987. "Unions and Efficiency in Private Sector Construction: Further Evidence," NBER Working Papers 2254, National Bureau of Economic Research, Inc.

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