Construction Management & Economics

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The divergence in aggregate and activity estimates

of US construction productivity

Paul M. Goodrum , Carl T. Haas & Robert W. Glover

To cite this article: Paul M. Goodrum , Carl T. Haas & Robert W. Glover (2002) The divergence
in aggregate and activity estimates of US construction productivity, Construction Management &
Economics, 20:5, 415-423, DOI: 10.1080/01446190210145868

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Construction Management and Economics (2002) 20, 415–423

The divergence in aggregate and activity estimates of

US construction productivity
PAUL M. GOODRUM 1 *, CARL T. HAAS 2 and ROBERT W. GLOVER 3
1Departmentof Civil Engineering, The University of Kentucky, Lexington, KY 40506–0281, USA
2Departmentof Civil Engineering, and 3LBJ School of Public Affairs, The University of Texas at Austin, Austin,
TX 78712, USA

Received 8 August 2001; accepted 5 April 2002

Discrepancies exist between aggregate and activity productivity measurements in the US construction industry.
Multiple studies using aggregate industry measures suggest that construction productivity has declined over
the long term. A longstanding problem with the aggregate measures concerns the difŽ culty of controlling for
in ation so as to accurately measure real output. As an alternative, average activity productivity, measured
by individual work activities, indicates that construction productivity has increased over the same time period.
Activity measurement data have been collected for 200 construction activities over a 22-year time period
from commercial estimation manuals used by contractors and owners to estimate the cost and time require-
ments for construction. This paper examines the discrepancies between aggregate and activity measurements
and suggests possible reasons for their existence.

Keywords: Labour, productivity, trends, construction industry, USA

Introduction This paper examines the problems of using aggre-

gate level data to measure construction productivity.
According to multiple studies using aggregate data, It also reports changes in construction productivity
there has been a long term decline in construction using activity level data. By using activity level data,
productivity in the USA. Prior research suggested that the problems of output measurement associated with
construction real output (value added) per hour fell aggregate data are avoided. New problems introduced
by approximately 2.4–2.8% per year from 1968 to are noted. Activity level data reveal a very different
1980 (Stokes, 1980; Allen, 1985). This Ž nding was trend in construction productivity from that revealed
supported by the Business Roundtable’s Construction by the traditionally used aggregate level data.
Industry Cost Effectiveness Project (1983), which indi-
cated a similar decline. Recent research has indicated Problems with construction aggregate
that these declines are continuing. Teicholtz (2001) productivity measurements
used real output of construction per workhour as
measured by the US Department of Commerce and The difŽ culty in measuring productivity accurately is
the US Bureau of Labor Statistics, and found that the not unique to the construction industry. This problem
construction industry’s labour productivity declined by has stumped economists across a broad range of indus-
0.72% at an annual compound rate from 1964 to 2000. tries. In order to better accommodate the effects
Furthermore, construction’s multifactor productivity1 of rapidly declining relative prices, such as the decline
has declined by 0.4 to 0.9% at an annual compound in the cost of computer chips, the US Bureau of
rate according to government estimates on unpublished Economic Analysis (BEA) revised the method for
data (Gullickson and Harper, 1999). calculating the gross domestic product (GDP) in the
1990s. The revised methodology has been described
*Author for correspondence. e-mail: pgoodrum@engr.uky.edu in detail by others (Young, 1992). One criticism of the
Construction Management and Economics
ISSN 0144–6193 print/ISSN 1466-433X online © 2002 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/01446190210145868
416
revised method is its inability to consider the apparent
improved quality of goods across a range of industries
(WSJ, 1995). In addition, the revisions signiŽ cantly
reduced prior estimates of productivity growth in the
overall US economy. Under the old GDP method, US
productivity in the 1990s increased at 2.2% per year,
and under the revised method it increased by only
1.4% per year. The revised estimate of productivity
growth in the 1990s was nearly identical to the rate of
productivity growth in the 1970s and 1980s. However,
many economists viewed this Ž nding as problematic,
because they had anecdotal evidence suggesting that
the average company used more advanced technology,
employed fewer people, and made more money than
in previous periods (Fleming, 1996). This same criti-
cism also exists in construction, where industry leaders
have expressed doubts regarding declines in aggregate
estimates of US construction productivity (e.g. T.
Kennedy, Chairman of BE&K Inc., and D. McCarron,
President of International Brotherhood and Carpenters
and Joiners, in 1998).
A multitude of scholars have examined the issue
of measurement problems with construction produc-
tivity. One of the more commonly cited problems is
the difŽ culty of measuring real output. Approximately
half of the construction industry’s output is adjusted
for in ation using input cost indices instead of output
price indices.2 Only 52.1% of construction output
was adjusted for in ation using output price indices
according to 1995 measures of construction output in
the Census’ Value of Construction Put in Place. The
remainder of construction output was adjusted for
in ation using either input cost indices or a combina-
tion of input cost and output price indices. The US
Census Bureau’s in ation indices, which convert the
value of construction to real output, are shown in
Table 1. The input cost index de ates output and uses
the assumption that a constant relationship exists
between the input and output. An input cost index
also assumes that productivity is constant (Pieper,
1989). Many have found evidence that input cost
indices in construction have overestimated construc-
tion in ation, thereby underestimating real output and
understating labour productivity (Dacy, 1965; Gordon,
1968; RoseŽ elde and Quinn Mills, 1979). In fact, Allen
(1985) acknowledged that half of the productivity
declines reported in his study were a result of the inac-
curacies of adjusting for construction in ation.
Construction real outputs adjusted using input cost
indices do not necessarily re ect innovation and design
improvements in construction (Dacy, 1965; Gordon,
1968; RoseŽ elde and Quinn Mills, 1979; Pieper,
1990). Construction projects are rarely similar. One
project may involve the construction of a major airport
runway while another project involves the construction
Goodrum et al.
of a downtown ofŽ ce complex. Even when projects are
of a similar type, varying ground conditions, weather,
and code requirements can make comparing one
project’s productivity to another very difŽ cult. Also,
over the past couple of decades, the Ž nal product in
construction has become more sophisticated. For
example, advances in structural design, Ž re protection,
HVAC systems, and information technology have
dramatically changed the construction product and
have signiŽ cantly raised the level of effort required to
create the Ž nal construction product. RoseŽ elde and
Quinn Mills (1979) argued that any measure of
construction productivity that does not account for
advances in design and quality would lead to low, if
not negative, estimates of construction productivity.
US governmental agencies, like the Department of
Commerce and the Bureau of Economic Analysis,
primarily use the Census’ Value of Construction Put
in Place to measure construction output. Although the
Census’ Value of Construction is a useful measure of
construction costs, there are problems with using it as
a measure of construction output. The Census’ Value
of Construction includes all the costs of construction
including material, labour, contractor’s proŽ t, archi-
tectural and engineering work, overhead, and miscel-
laneous interest and taxes. The primary problem with
the Census’ Value of Construction is its use of both
input cost and output price indices (Table 1).
Another problem is that the Census uses a number
of proxy indices from other sectors of construction to
measure real output. An example is the US Census
Bureau Single-Family Houses Under Construction
index, which is designed to measure productivity in
the residential sector. This index is also used to
measure non-residential and military facilities’ real
output. As a result, more than half of the Census Value
of Construction Put in Place is converted to real output
using the US Census Bureau Single-Family Houses
Under Construction Index. The problem is that there
have been signiŽ cant breakthroughs in the means and
methods of non-residential and military construction,
including modularization, prefabrication, informa-
tion technology, and construction automation. These
breakthroughs have not occurred in residential con-
struction. Furthermore, signiŽ cant  uctuations in
new house prices have occurred as a result of interest
rate changes. Therefore, the use of the Single-Family
Houses Under Construction index in non-residential
and military construction sectors will adversely effect
their output measurement.
Although it is the preferred price index, the Census
Single-Family Houses Under Construction index
still has a potential problem of ignoring changes in
the quality of construction. It is calculated using
a ‘hedonic’ or regression methodology. The Census
Estimates of US construction productivity 417

Table 1 Sources of cost and price indices used to adjust the value of construction put in place to constant dollars
Type of construction
Residential buildings
Industrial buildings
OfŽ ce buildings
Hotels and motels
Other commercial buildings
Educational buildings
Hospital and institutional buildings
Religious buildings
Miscellaneous non-residential buildings
Farm non-residential
Railroads
Telecommunications
Electric light and power
Gas and petroleum pipelines
Military facilities
Highways and streets
Sewer systems and conservation and
development
Water supply facilities
All other private and public
Source: Department of Commerce (1998).
Name of index Type of index
US Census Bureau Single-Family Houses Price
Under Construction
Unweighted average of:
• Turner Construction Company Turner: Cost
• US Census Bureau Single-Family Houses Census: Price
Under Construction
Unweighted average of:
• Federal Highway Administration Federal Highway: Price
Composite Index Bureau of Reclamation: Cost
• Bureau of Reclamation Composite Index
C.A. Turner Telephone Plant Cost
Weighted Average of:
• Handy–Whitman electric (weight 9) Handy–Whitman electric: Cost
• Handy–Whitman utility building (weight 1) Handy–Whitman utility: Cost
Handy–Whitman gas Cost
Weighted average of:
• Federal Highway Administration Composite Federal Highway: Price
Index (weight 2) Census: Price
• US Census Bureau Single-Family Houses Turner: Cost
Under Construction (weight 1)
• Turner Construction Company (weight 1)
Federal Highway Administration Composite Index Price
Bureau of Reclamation Cost
Handy–Whitman Water Cost
Unweighted average of:
• Federal Highway Administration Composite Federal Highway: Price
Index & Bureau of Reclamation: Cost
• Bureau of Reclamation

annually collects data on the sales price, lot value, and
house characteristics of approximately 9000 specula-
tively built single-family homes. The index is calcu-
lated when the sales price less the estimated lot value
is regressed on ten house characteristics (e.g. square
feet of  oor area, lot size, number of stories, number
of bathrooms, presence or absence of a basement,
garage, Ž replace, central air conditioning, metropolitan
location, and geographic location), which were based
on a 1960 model home and revised in 1974 with
the addition of Ž replace and central air conditioning
variables.
Unfortunately, most of the independent variables
measure quality through size and location related
measurements, with Ž replaces and central air condi-
tioning as the only exceptions (Pieper, 1990). The
Census index does not include measures for the quality
of materials or design amenities (e.g. bathroom and
kitchen appliances, closet space, energy efŽ ciency
improvements, and patios). The Census index will
overestimate the price when these omitted measures
for quality have increased in cost relative to the
included measures (Pieper, 1990). This appears to be
the case. For example, in 1973 52% of all new houses
used electric powered heating, which is more expen-
sive than gas and oil powered heating. By 1998, only
26% of new houses were primarily heated by electricity
(US Department of Commerce). Regarding household
418
appliances, 65% of all new homes sold in 1973 had a
dishwasher. By 1990, the last year for which the
statistic was available from the US Census Bureau,
92% of all new homes included a dishwasher (US
Department of Commerce). The absence of measures
for quality leads the Census index to overestimate
construction in ation, thereby underestimating con-
struction real output and construction productivity
(Pieper, 1990). This bias has a widespread effect on
measuring output, since it accounts for more than half
of the Census Value of Construction Put in Place.
The measurement of productivity in construction is
not a new problem. There are some who argue that
this problem of output measurement has always
existed, and it does not explain all of the measured
declines in construction productivity. Rees (1980)
argued that to attribute the slowdown in construction
productivity to errors in output measurement, one
must show that the errors increased from the 1970s,
through the 1980s, and up to the 1990s. While this
type of explanation is worthy of further research, it
is outside the scope of this paper. It is important
to note, however, that the US Bureau of Labor
Statistics does not maintain a productivity index for
the construction industry, because it so difŽ cult to
adjust construction costs to measure construction real
output (Rosenblum, 2000).
There are other problems with aggregate construc-
tion output measurements. Many estimates of con-
struction aggregate productivity use data from different
US governmental agencies, such as the hours reported
by the Bureau of Labor Statistics and the dollar
amounts reported by the Department of Commerce.
Governmental agencies use different methodologies
and analyses in creating their data series; this needs to
be addressed. Finally, there is also a need to under-
stand how the growing trend of offsite production is
impacting construction productivity. One study indi-
cated that between 1984 and 1999 prefabrication as a
percentage of industrial project work almost doubled,
from 14% to 27% (Haas et al., 1999). Many Ž rms who
construct prefabricated units are classiŽ ed as manu-
facturing Ž rms. Therefore, there is an issue of how
their man-hours and output should be included in an
aggregate measure of construction productivity.
Methodology
Activity level analysis of construction
productivity
In contrast to the aggregate measures described above,
changes in the physical activity of individual construc-
tion tasks have been estimated by the authors and are
Goodrum et al.
summarized here. Examining construction productivity
using activity level data offers three main advantages.
First, the changes in physical output of construction
activities (e.g. the cubic metres of concrete placed) do
not rely on construction price indices to measure real
output for either labour or multifactor productivity.
Second, for the measure of activity labour produc-
tivity, input is measured by the number of worker
hours, which gives further independence in the use of
construction cost de ators. Third, input and output
are easier to compare over time at the activity level.
For example, when the activity involves the installa-
tion of aluminium strip siding, 6-inch aluminium trays,
or 2-ply reinforced curing paper, the characteristics of
the Ž nal output tend to remain the same.
Data source and activity selection criteria
Data were collected for years 1976 and 1998 on 200
construction activities from Means’ Building Construc-
tion Cost Data, Richardson’s Process Plant Construction
Estimating Standards, and the Dodge Cost Guides (DCG).
Data were collected on 100 activities from Means, 50
activities from Richardson, and 50 activities from
Dodge. These manuals provide construction cost data
for the purpose of project estimating and budgeting
purposes. The manuals give unit labour cost, unit
equipment cost, physical output, and workhour
requirement for each activity. These data are compiled
on an annual basis from a variety of sources across the
construction industry, including owner organizations,
construction contractors, and construction trade orga-
nizations.
Although the estimation manuals provide one of
the best sources of time-series data on construction
productivity, there are weaknesses in the data.
Contractors who submit the information for the esti-
mation manuals know that they are not required to
construct a project using their estimations, and this
tends to create in ated estimates of construction costs
(Pieper, 1989). However, the annually published
manuals are sold in volume for commercial use to a
multitude of construction contractors, owner compa-
nies and governmental agencies all of whom use the
estimation manuals to predict project performance.
Furthermore, there is precedence for using estimation
manuals in research to estimate productivity (Thomas
and Yiakoumis, 1987) and, unlike other sources, esti-
mation manuals provide data going back to 1976.
There were three criteria used to select activities for
inclusion in the study. First, the activity had to appear
in both the 1998 and 1976 estimation manuals. Some
activities included in the 1976 manuals were phased
out of the 1998 manuals due to changes in method-
ology and materials. Likewise, several new activities
Estimates of US construction productivity 419

Input costs in multifactor productivity were de ated to

Sitework n=31
1990 dollars using the Construction Cost Index (CCI)3
Finishes n=23
from Engineering News Record. Note that Formulas
Concrete n=22 1 and 2 assume physical output measures do not
Metals n=21 change in quality. This is based on the assumption that
Doors and Windows n=17 changes in quality would be minimal, since the research
Moisture-therm n=17 examined construction activities that had not changed
in scope between 1976 and 1998.
Wood and Plastic n=17
Next, the percentage change in labour and multi-
Masonry n=17
factor productivity from 1976 to 1998 was measured
Electrical n=14 for each activity using the following formulas:
Mechanical n=14
Specialities n=7
% change in Labour Productivity, ’76–’98 =

0 10 20
Bars show counts
30
1 ––––––––––––––––––––––––––––––––––––––––––—
Labour Productivity, ’98 – Labour Productivity, ’76
Labour Productivity, ’76
2´ 100
(3)
Figure 1 Distribution of construction activities by division
% change in Multifactor Productivity, ’76–’98 =
(source: Means, Richardson, DCG)

were added to the 1998 manuals due to new advances

in technology. Second, activities experiencing a diverse
range of technical change were selected. Third, activ-
ities from different divisions of the Construction
SpeciŽ cation Institute (CSI) Masterformat (Figure 1)
were selected to provide a wide range of activity types.
Productivity measurement
One of the challenges in analysing productivity statis-
tically is that each construction activity has a different
unit of measurement. For example, a concrete place-
ment activity may have a multifactor productivity
measured in cubic yards of concrete placed per unit
cost, while structural steel placement may be measured
in linear feet of steel placed per unit cost. Using rela-
tive instead of absolute values is one way to solve this
issue. Thus, the percentage change in productivity
from 1976 to 1998 was used.
Expected physical output data and crew formation
data from the estimation manuals were used to calcu-
late each activity’s labour productivity (Formula 1
below), and expected physical output data, labour
input cost data, and equipment input cost data from
the estimation manuals were used to calculate each
activity’s multifactor productivity (Formula 2 below).
Labour
Expected Physical Output (Units)
Productivity, ———–––––––––––––––––––———
Workhour Requirements (Hrs)
Year X =
Multifactor
Expected Physical Output (Units)
Productivity, ———–––––––––––––––––––———
Year X = Labour Cost (1990$) +
Equipment Cost (1990$)
1 Multifactor
––––––––––––––––––––––––––––––––––––––––––—––– 2 ´ 100
Productivity, ’98 – Multifactor Productivity, ’76
Multifactor Productivity, ’76
(4)
Note that there is a weakness in using just two points
in time to measure the change in productivity, since
the results can be affected by the choice of the two
years. Particularly, it is noted that 1976 was a year
of stag ation and excess capacity in the USA. It is
expected that  uctuations in the change in productivity
would occur in a year-by-year analysis. However, by
examining the changes in productivity over a 22-year
time period, the research was designed to focus on the
long term trends in construction productivity.
Results
As seen in Table 2, the mean change in labour produc-
tivity for the 200 activities was 30.9%, with a 95%
conŽ dence interval of ± 9.2% and an annual comp-
ound rate of improvement of 1.2%. For the same activ-
ities, the mean change in multifactor productivity was
36.2%, with a 95% conŽ dence interval of ± 10.8%
and an annual compound rate of 1.4% (Table 3).
There are many speciŽ c examples of productivity
improvement in the sampled activities. For example,
wood framing of 2-inch ´ 6-inch beam and girders
(which beneŽ ted from an increased use of the pneu-
matic nail gun) experienced a 67.3% improvement in
multifactor productivity and a 62.1% improvement
in labour productivity between 1976 and 1998
(1)
(Means). Also, paint spraying of interior concrete walls
experienced an 87.4% increase in multifactor produc-
tivity and a 76.1% increase in labour productivity
(Richardson). Concrete Ž nishing experienced a 52.0%
(2) increase in multifactor productivity and a 43.4%
420 Goodrum et al.

Table 2 Descriptive statistics of the % change in labour productivity from 1976 to 1998
95% ConŽ dence interval
of the mean
Mean ta df Sig. Min. Max. Std. dev. Lower Upper
+30.9% 6.7 199 .000 -50.0% 352.3% 65.9% +21.7% +40.1%
a
Test value = 0. Source: Means, Richardson, DCG.

Table 3 Descriptive statistics of the % change in multifactor productivity from 1976 to 1998

95% ConŽ dence interval

of the mean
Mean ta df Sig. Min. Max. Std. dev. Lower Upper
+36.2% 7.1 199 .00 -60.7% +353.7% 66.4% +25.4% +47.0%
a
Test Value = 0. Source: Means, Richardson, DCG.

increase in labour productivity (Dodge). Undoubtedly
there are many factors that contributed to these
improvements, from technological advances to work-
force related issues.
The average change in labour and multifactor pro-
ductivity of the activities overall for each data source
is shown in Table 4. All three manuals indicated that
labour and multifactor productivity increased from
1976 to 1998. Means revealed a 0.8% compounded
annual rate of improvement in labour productivity,
Richardson a 1.2% increase and Dodge a 1.8% increase.
For multifactor productivity, Means showed a 0.7%
increase, Richardson a 0.7% increase and Dodge a
2.9% increase. The different estimates of productivity
improvement are partially a re ection of the different
distribution of types of construction activity in different
divisions for each manual.
Next, activities were grouped by CSI Masterformat
division, and the compounded annual rates of change
in labour and multifactor productivity were calculated
for each division (Table 5).
It is clear from this sample that different sectors of
the construction industry experienced varying degrees
of change in productivity. On average, sitework
activities experienced the greatest improvement in
labour and multifactor productivity. Electrical, mois-
ture and thermal protection, and woods and plastic
activities experienced the smallest improvements in
labour and multifactor productivity. Further research
is required to determine the reasons for the differences
in productivity change by division.
Although these results indicate that productivity, on
average, improved from 1976 to 1998, there were some
exceptions. Labour productivity declined in 30 activi-
ties, was unchanged in 63 activities, and improved
in 107 activities. There was a similar pattern in the
changes for multifactor productivity: 57 activities expe-
rienced a decline in multifactor productivity, and 147
experienced an improvement.
As illustrated in Figure 2, real wages in the US con-
struction industry, after being adjusted for in ation
using the Consumer Price Index,4 declined substan-
tially over that couple of decades. There was also a
decline in real wages in the total manufacturing indus-
try, but the decline was more substantial in construc-
tion. Prior research suggested that this is a result of a
decrease in unionization and prevailing wage agree-
ments, deskilling of the workforce, increased safety, and

Table 4 Estimates of labour and multifactor productivity trends from 1976 to 1998 by data source

Data source Activity sample Labour productivity Multifactor productivity

size compounded annual compounded annual
rate rate
Means Building Construction
Cost Data 100 +0.8% +0.7%
Richardson Process Plant
Construction Estimating Standards 50 +1.2% +0.7%
Dodge Cost Guide 50 +1.8% +2.9%
Estimates of US construction productivity 421

Table 5 Compounded annual rate of change in labour and multifactor productivity for activities
by division from 1976 to 1998

Construction division Change in labour Change in multifactor

productivity 1976–1998 productivity 1976–1998
(compound annual rates) (compound annual rates)
Sitework +2.8% +2.4%
Doors & Windows +1.6% +1.8%
Metals +1.5% +1.0%
Finishes +1.2% +1.6%
Masonry +1.2% +0.8%
Concrete +1.1% +1.4%
Mechanical +1.0% +1.4%
Wood & Plastic +0.3% +0.4%
Moisture & Thermal Protection +0.2% +0.6%
Electrical +0.0% +0.8%
Source: Means, Richardson, DCG.

25.00 13.12% from 1976 to 1998, with a 95% conŽ dence

24.00
23.00 interval of 8.77% and an annual compounded rate of
Average Hourly Wage (1990$)

22.00
21.00 0.56%. The annual compounded rate of improvement
20.00
19.00 was 1.4% when no adjustment for real wage declines
18.00
17.00 was included. Although the Ž ndings indicate that real
16.00
15.00 wage declines affected multifactor productivity esti-
14.00
13.00 mates, further research is needed to fully understand
12.00
11.00 and quantify the factors behind these estimates.
10.00
1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Year Other trends supporting productivity

Total Manufacturing
Heavy Construction
Figure 2 Real wage trends (according to average hourly
wages in 1990 Dollars) in construction from 1968 to 1999
(source: Bureau of Labor Statistics)6
increased numbers of migrant workers (Allmon et al.,
2000; Oppedahl, 2000).
Obviously, the real wage decline in the construction
industry has had a substantial effect on labour costs in
multifactor productivity. This study examined this
effect. To do this, labour costs as listed in the esti-
mation manuals were adjusted for in ation using the
Engineering News Record’s CCI. Next, using historical
construction wage data from the US Bureau of Labor
Statistics, a real wage index was created to normalize
the real wage declines to 1990 levels (Goodrum, 2001).
It should be noted that the real wage index is not meant
to represent an adjustment in labour quality. To adjust
for labour quality, an index would need to account for
changes in education, experience and skills mix, among
other traits. When this index was applied on top of the
adjustment for in ation, the estimated improvements
in multifactor productivity were not as great. With the
adjustment for real wage declines, overall multifactor
productivity in the 200 activities improved by only
General Contractors improvement
Special Trades
Thus far, the paper has presented evidence that
construction productivity measured at the activity level
and using a variety of data sources improved between
1976 and 1998. One would expect other industry
measures such as labour and capital utilization to have
changed also in a manner to support such growth.
Much research is needed to fully understand how
industry trends measured using other aggregate
measures impact construction productivity. Previous
economic researchers have used macro changes in the
capital/labour ratio, economies of scale, labour quality,
unionization, regional shifts, and changes in the mix
of construction output to argue for various produc-
tivity trends in the past (Stokes, 1980; Allen, 1985).
Prior research found a positive relationship between
capital/labour ratio growth and productivity improve-
ment in construction. Some believed that the decline
in capital/labour ratios5 is the biggest factor contribut-
ing to aggregate estimates of productivity declines.
The capital/labour ratio increased in more than 70%
of the paper’s activities (Goodrum and Haas, 2002).
Furthermore, the increase in the capital/labour ratio
and other technological measurements explained more
than 36% of the variance in labour productivity, which
indicates that capital has replaced labour at the imme-
422
diate point of construction (Goodrum and Haas,
2002). One anecdotal example is the increased used
of the pneumatic nail gun instead of the hand held
hammer in carpentry and concrete trades over the past
couple of decades. It is important to note, however,
that capital/labour ratios explained only 10% of the
improvements in multifactor productivity. This re ects
the labour saving bias of technical change on produc-
tivity, and it suggests that rising capital/labour ratios
alone do not contribute to productivity improvement.
Relative prices, rates of technological progress, worker
skills mixes, improvements in management systems
and workforce relations also contribute to productivity.
Conclusion
Doubts about changes in construction productivity are
not new. Measurement of construction aggregate out-
put makes estimating productivity difŽ cult. These issues
become less problematic when construction productiv-
ity is measured at the activity level. This paper has pre-
sented evidence that labour and multifactor productivity
increased from 1976 to 1998 in the US construction
industry when using activity level data. What remains
unclear is why these improvements are not re ected
when aggregate level data are used. One possible expla-
nation for the discrepancy could be the problems with
the aggregate output measurements, although other rea-
sons may exist that are yet to be identiŽ ed, like increas-
ing project complexity. Until government, academic,
and industry leaders reach an agreement about the
aggregate output measures, the debate over the increase
or decrease in productivity in the US construction
industry will continue. Considering the size of the con-
struction industry and its impact on the overall US econ-
omy, further research on this issue is warranted.
References
Allen, S.G. (1985) Why construction industry productivity is
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Estimates of US construction productivity
Notes
1 Multifactor productivity is the ratio of output to more
than one input factor. Many US governmental agencies,
e.g. the Bureau of Labor Statistics, use a measure of
multifactor productivity that may also be considered
a total factor productivity estimate, since it uses a
combined measure of all inputs including labour, capital
and materials. A detailed description of the methodology
that the BLS uses in estimating multifactor productivity
is given in the US Bureau of Labor Statistics Handbook
of Methods, Bulletin 2497, April 1997. The present
paper also measures multifactor productivity, but it uses
a simpliŽ ed procedure that includes the input measures
of labour and equipment only (see later sections).
2 Input cost indices estimate the change in the price
of construction for the contractor, while output price
indices estimate the price that an owner pays to buy a
constructed facility. Due to a lack of construction output
price indexes, typically cost indexes have been used
instead for many sectors of the construction industry.
3 The CCI is based on the price of ‘25 cwt of structural
steel shapes at the mill price prior to 1996 and the fabri-
cated 20-city price from 1996, plus 1.128 tons of
Portland cement at the 20-city price, plus 1088 board-
ft of 2 ´ 4 lumber at the 20-city price, and 200 hours
of common labour from 20 cities throughout the USA’.
4 Although the paper adjusts construction wages for in a-
tion using the Engineering News Record CCI in its
analyses, construction wages in Figure 2 were adjusted
for in ation using the Consumer Price Index (CPI) to
423
allow a direct comparison with real wages in construc-
tion and manufacturing.
5 Declining capital/labour ratios were cited as a major
contributor in productivity declines from 1968 to 1978
by Allen (1985). However, Pieper (1989) showed
capital/labour ratios actually increased over this time
period, and were indicators of productivity growth in
construction.
6 The general contractors, heavy construction, and special
trades are classiŽ cations per the North American Industry
ClassiŽ cation System (United States OfŽ ce of Manage-
ment and Budget 1997). The general contracting sub-
sector comprises establishments primarily responsible
for the entire construction (i.e. new work, additions,
alterations and repair) of building projects. Builders,
developers, and general contractors, as well as land subdi-
viders and land developers are included in this subsector.
Establishments identiŽ ed as construction management
Ž rms for building projects are also included. The heavy
construction subsector group includes establishments
that engage in the construction of heavy engineering
industrial projects (except buildings). For example,
highway, powerplant, and pipeline contractors are
included in this group. Special trade contractors sub-
sector engages in specialized construction activities such
as plumbing, painting, and electrical work. Total manu-
facturing includes establishments engaged in the mechan-
ical, physical, or chemical transformation of materials,
substances or components into new products. Construc-
tion establishments are not included in the total manu-
facturing subsector.