Economic approaches to measuring construction productivity in Canada

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Economic approaches to measuring construction productivity in

Canada

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ECONOMIC APPROACHES TO MEASURING CONSTRUCTION PRODUCTIVITY I N CANADA

by A.S. Rakhra

A N A L Y Z E 3

Presented at CIB 84

Third International Symposium on Building Economics Ottawa, Ontario, Canada.

Proceedings, Vol. 4, p. 5 1

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ECONOMIC APPROACHES TO MEASURING CONSTRUCTION PRODUCTIVITY I N CANADA A.S. Rakhra

D i v i s i o n of B u i l d i n g Research,

N a t i o n a l Research Courlcil o f Canada, Ottawa, Canada, KIA

OR6

Key words

Cons t r u c t i o n p r o d u c t i v i t y 1 Canada/ p r o d u c t i v i t y measures/ l a b o u r p r o d u c t i v i t y / t o t a l f a c t o r p r o d u c t i v i t y

SYNOPSIS

T h i s p a p e r r e v i e w s v a r i o u s c o n c e p t s o f p r o d u c t i v i t y . Economic approaches t o measuring p r o d u c t i v i t y i n c o n s t r u c t i o n and problems a s s o c i a t e d w i t h them a r e discussed. Trends a n d s o u r c e s o f

c o n s t r u c t i o n p r o d u c t i v i t y a r e a n a l y z e d , u s i n g Canadian d a t a .

~ s m E

Cette c o m n u r ~ i c a t i o r ~ examine d i v e r s c o n c e p t s d e p r o d u c t i v i t d . Des approches Qconomiques pour mesurer l a p r o d u c t i v i t Q dans

l a

c o n s t r u c t i o r ~ e t l e s p r o b l h e s associ'es

a

ces a p p r o c h e s s o u t t r a i t & . Les tendances e t les s o u r c e s de l a p r o d u c t i v i t e dans l a c o n s t r u c t i o n s o u t analys'ees e n u t i l i s a r ~ t d e s doon'ees canadiennes.

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ECONOMIC APPROACHES TO MEASURING CONSTRUCTION PRODUCTIVITY I N CANADA

A.S. Rakhra

INTRODUCTION

"Our p e r c e p t i o n of p r o d u c t i v i t y i n t h e c o n s t r u c t i o n i n d u s t r y

i s

p r e t t y cloudy..

.

What we know a b o u t t h e i n d u s t r y i s o f t e n e i t h e r t o o

p r a c t i c a l o r t o o s p e c u l a t i v e o r t o o d e t a i l e d o r , on t h e o t h e r hand, t o o g e n e r a l .

. .

I t h i n k w e would b e making g r e a t headway i f

w e

c o u l d j u s t come t o some agreement on t h e b a s i s of fundamentals: on

u n d e r l y i n g c o n c e p t s , on t h e k i n d s of d a t a w e need, o n t h e g o a l s of b a s i c r e s e a r c h . And I hope w e would a g r e e t o c o o p e r a t e f o r t h e f r e e exchange of i n £ ormat i o n and experience".

I n t h e same v e i n , Douglas Stacy, a well-known economist on

c o n s t r u c t ion, remarked, "Economists have t e n d e d t o s h y away from [ c o n s t r u c t i o n p r o d u c t i v i t y ] r e s e a r c h because t h e a v a i l a b l e s t a t i s t i c s have been viewed a s i n a p p r o p r i a t e o r u n r e l i a b l e . Consequently, t h e f i e l d h a s been pre-empted, more o r less, by t h e p o p u l a r p r e s s which h a s propagated a most d i s t i n c t n ~ t i o n " , ~ which may n o t b e a n a c c u r a t e r e f l e c t i o n of r e a l i t y . I n t h e words of a n o t h e r a u t h o r , t h e

c o n s t r u c t i o n i n d u s t r y

i s

n o t e d f o r i t s

".

.

. i n c r e d i b l e i n e f f i c i e n c y " .

The above q u o t e s under1 i n e t h e p r o b l e m and i n d i f f e r e n c e a s s o c i a t e d w i t h r e s e a r c h on p r o d u c t i v i t y i n c o n s t r u c t i o n . The a u t h o r b e l i e v e s t h a t t h i s s h o u l d n o t b e t h e case. The c o n s t r u c t i o n i n d u s t r y c o n t r i b u t e s t o n a t i o n a l economies, i t p r o v i d e s employment t o t h e l a b o u r f o r c e * and h a s l i n k a g e e f f e c t s w i t h o t h e r i n d u s t r i e s (i.e. d i r e c t and i n d i r e c t e f f e c t s g e n e r a t e d by t h e expansion o r c o n t r a c t i o n of c o n s t r u c t i o n on t h e rest of t h e e c o n o ~ ~ y ) : ~ i t i s c l e a r t h a t t h e c o n t r r ~ c t i o n i n d u s t r y i s one of t h e most important of a l l , and i t d e s e r v e s more a t t e n t i o n from r e s e a r c h e r s t h a n i t h a s r e c e i v e d i n t h e p a s t .

T h i s p a p e r r e v i e w s b r i e f l y t h e v a r i o u s c o n c e p t s and methods of measuring p r o d u c t i v i t y i n c o n s t r u c t i o n and t h e problems a s s o c i a t e d w i t h them. Work-studies and time-motion s t u d i e s a r e n o t d i s c u s s e d ,

as

they d e a l w i t h work performed a t o n l y one s t a g e (i.e. a t s i t e ) and a r e s u b j e c t i v e and h a r d t o i n t e r p r e t i n economic terms. P r o d u c t i v i t y t r e n d s i n Canada a r e reviewed, u s i n g v a r i o u s p r o d u c t i v i t y concepts. They a r e compared t o p r o d u c t i v i t y t r e n d s i n o t h e r s e c t o r s o f t h e economy. Sources of p r o d u c t i v i t y i n c o n s t r u c t i o n a r e analyzed. Also, c o n s t r u c t i o n p r o d u c t i v i t y i n Canada i s measured f o r 1971-1980, u s i n g t h e concept oE t o t a l f a c t o r p r o d u c t i v i t y .

VAKIOIJS CONCEPTS OF PR0L)UCTIVITY

The concept of p r o d u c t i v i t y h a s a c q u i r e d a v a r i e t y of meanings t h a t a r e c o n f u s i n g and u n c l e a r . Broadly speaking, p r o d u c t i v i t y i s a measure of o u t p u t per u n i t of i n p u t p e r p e r i o d of time. Normally, t h e r e a r e s e v e r a l i n p u t s i n t h e p r o d u c t i o n p r o c e s s , namely l a b o u r ,

.--

*

For example, i n Canada, t h e v a l u e of c o n s t r u c t i o n o u t p u t c o n s t i t u t e s 16% of t h e g r o s s n a t i o n a l product (GNP). Construct i o n employment c o n s t i t u t e s 6% of t h e t o t a l n a t i o n a l employment.

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c a p i t a l and managerial s k i l l s . One c a n t h e r e f o r e t a l k of " l a b o u r p r o d u c t i v i t y " , " c a p i t a l p r o d u c t i v i t y " and "manager's

p r o d u c t i v i t y " .

Labour p r o d u c t i v i t y , f o r i n s t a n c e , i s t h e amount of o u t p u t produced p e r h o u r , week, month o r y e a r . It can b e c a l c u l a t e d by d i v i d i n g t h e v a l u e of o u t p u t produced p e r p e r i o d of time by t h e number o f workers ( o r work-hours) employed o v e r t h e same p e r i o d . T h i s

i s

s i n g l e f a c t o r p r o d u c t i v i t y (SFP); i t r e l a t e s t o o n l y one i n p u t . S y m b o l i c a l l y , i t

can be e x p r e s s e d a s :

where SFPL is average p r o d u c t i v i t y of l a b o u r

(L)

and Y i s l e v e l of o u t p u t .

T h i s c o n c e p t of p r o d u c t i v i t y t a k e s i n t o a c c o u n t t h e c o n t r i b u t i o n o f only one i n p u t t o o u t p u t . I n t h e r e a l world, however, t h e r e

is

more t h a n one i n p u t and a l l of t h e s e c o n t r i b u t e t o t h e p r o d u c t i o n p r o c e s s . The concept of t o t a l f a c t o r p r o d u c t i v i t y (TFP) i s based on t h i s f a c t and t a k e s i n t o a c c o u n t t h e c o n t r i b u t i o n o f a l l f a c t o r s of p r o d u c t i o n , which depends on t h e i r q u a n t i t y , t h e i r q u a l i t y , and t h e e f f i c i e n c y w i t h which t h e y a r e used. Assuming t h a t l a b o u r and c a p i t a l a r e t h e two f a c t o r s of p r o d u c t i o n , TFP can be d e f i n e d a s o u t p u t p e r u n i t . o f l a b o u r and c a p i t a l combined. Symbolically i t c a n b e e x p r e s s e d a s :

TFP =

Y

( aL+bK)

where Y , L, and K a r e t h e a g g r e g a t e l e v e l of o u t p u t , l a b o u r , and

c a p i t a l i n p u t s ; a and b a r e t h e r e s p e c t i v e income s h a r e s of l a b o u r a n d c a p i t a l .

These two approaches a r e p r o d u c t i o n - o r i e n t e d , i .e.

,

t h e p r o d u c t i v i t y of a f i r m o r i n d u s t r y is d e f i n e d I n terms of g r o s s o u t p u t ( o r v a l u e added) p e r p e r s o n employed ( a s i n t h e c a s e o f 1 abour p r o d u c t i v i t y ) o r p e r u n i t of l a b o u r and c a p i t a l combined ( a s i n t h e case of t o t a l f a c t o r p r o d u c t i v i t y ) . These c o n c e p t s d o n o t t a k e i n t o a c c o u n t t h e interdependence of one i n d u s t r y w i t h a n o t h e r . For example, t h e

c o n s t r u c t i o n i n d u s t r y buys a l m o s t a l l i t s m a t e r i a l s from m a n u f a c t u r i n g i n d u s t r i e s . P r o d u c t i v i t y improvements i n c o n s t r u c t i o n may o c c u r b e c a u s e of improvements i n m a t e r i a l q u a l i t y o r r e d u c t i o n i n p e r u n i t m a t e r i a l manufacturing c o s t s . An a l t e r n a t i v e i n p u t / o u t p u t c o n c e p t of p r o d u c t i v i t y i s c o n s u ~ n p t i o n - o r i e n t e d ( o r demaud-oriented) r a t h e r t h a n production- o r i e n t e d . P r o d u c t i v i t y , a c c o r d i n g t o t h i s c o n c e p t , i s d e f i n e d by t h e r e c i p r o c a l of t h e t o t a l l a b o u r r e q u i r e d t o produce and d e l i v e r one u n i t of o u t p u t f o r f i n a l c o n ~ u m ~ t i o n . ~ P u t i n s i m p l e t e r m s ,

p r o d u c t i v i t y i s e x p r e s s e d i n terms of t h e t o t a l l a b o u r requirement. T h i s i n c l u d e s t h e 1 abour r e q u i r e d d i r e c t l y , t o assemble and t r a n s p o r t t h e f i n a l good, and indirectly, t o producc and p r o c e s s b o t h t h e

m a t e r i a l s and t h e energy used f o r t h e p r o d u c t i o n of t h e f i n a l good. I n t h e c o n s t r u c t i o n i n d u s t r y , f o r example, p r o d u c t i v i t y is s a i d t o have gone up 22% i f t h e d i r e c t and i n d i r e c t man-hbur r e q u i r e m e n t s t o

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b u i l d a s i n g l e f a m i l y home of t h e

same

d e s i g n a n d

1

i v i n g s p a c e d e c l i n e s from, s a y , 1100 i n 1965 t o 900 i n 1980.*

APPROACHES TO PRODUCTIVITY MEASUREMENT: AN OVERVIEW

The e a r l i e s t approach t o f a c t o r p r o d u c t i v i t y measurement

is

b a s e d o n t h e r a t i o between t h e a g g r e g a t e o u t p u t d i v i d e d by t h e o b s e r v e d

q u a n t i t y of a s i n g l e i n p u t , t y p i c a l l y l a b o u r . These p r o d u c t i v i t y r a t i o s are sometimes n o r m a l i z e d by e q u a t i n g them t o 1 0 0 i n some b a s e y e a r , r e s u l t i n g i n a p r o d u c t i v i t y index.

T h i s index-approach, u s i n g SFP, h a s t h e a d v a n t a g e s o f b e i n g s i m p l e and easy t o compute. Also, d a t a on l a b o u r is g e n e r a l l y a v a i l a b l e . The b i g g e s t drawback i s t h a t t h i s approach d o e s n o t i d e n t i f y t h e c a u s a l f a c t o r s a c c o u n t i n g f o r observed p r o d u c t i v i t y growth. For example, t h i s approach c a n n o t e x p l a i n w h e t h e r a n o b s e r v e d change i n l a b o u r p r o d u c t i v i t y i n t h e c o n s t r u c t i o n i n d u s t r y i s due t o t h e u s e of more e f f i c i e n t machinery and equipment, t h e employment of b e t t e r t r a i n e d manpower o r t h e r e a l i z a t i o n of economies of s c a l e .

To t a k e i n t o a c c o u n t more t h a n o n e f a c t o r o f p r o d u c t i o n and t o

i d e n t i f y t h e c a u s a l f a c t o r s a c c o u n t i n g f o r p r o d u c t i v i t y , TFP h a s b e e n u s e d q u i t e e x t e n s i v e l y s i n c e t h e mid-1960's. T h e r e

are

two v a r i a n t s of TFP. Both d e a l w i t h more t h a n one f a c t o r of p r o d u c t i o n , b o t h u s e p r o d u c t i o n functions*", b u t w i t h o n e d i f f e r e n c e . The f i r s t approach, pioneered by

R.

Solow i n 1957 and used e x t e n s i v e l y by o t h e r s , u s e s p r o d u c t i o n f u n c t i o n e x p l i c i t l y and e s t i m a t e s TFP b d i r e c t l y

e s t i m a t i n g t h e c o n t r i b u t i o n of t e c h n i c a l progress.$ The second approach h a s b e e n u s e d mostly by

endr rick^

and Denison. It u s e s p r o d u c t i o n f u n c t i o n i m p l i c i t l y and measures p r o d u c t i v i t y by u s i n g E u l e r e q u a t i o n of d i s t r i b u t i o n . * * * These two approaches are e x p r e s s e d by t h e f o l l o w i n g e q u a t i o n s .

Cobb-Doug1 a s p r o d u c t i o n f u n c t i o n :

Y

=

A L ~ K B

(3a)

*

F i g u r e f o r 1965 i s based o n t h e assumption t h a t two-thirds o f t h e v a l u e of c o n s t r u c t i o n put-in-place is added a t t h e c o n s t r u c t i o n s i t e . Labour r e q u i r e m e n t s a t w o r k - s i t e a r e a l s o assumed t o b e i n t h e same p r o p o r t i o n . S i n c e a s t u d y a t t h e D i v i s i o n of B u i l d i n g Research found t h a t b u i l d i n g a s i n g l e f a m i l y home w i t h

1150 sq. f t . a r e a r e q u i r e d about 750 work-hours i n 1965, i t

i s

e s t i m a t e d t h a t i f one i n c l u d e d i n d i r e c t 1 abour r e q u i r e m e n t s , t h e t o t a l would be about 1100 man-hours. The f i g u r e of 900 man-hours f o r 1980 i s h y p o t h e t i c a l .

**

A p r o d u c t i o n f u n c t i o n i s a t e c h n i c a l r e l a t i o n s h i p e x p r e s s i n g t h e anount of o u t p u t c a p a b l e of b e i n g produced by a g i v e n s e t of s p e c i f i e d i n p u t s . It i s d e f i n e d f o r a g i v e n s t a t e o f t e c h n i c a l knowledge.

***

E u l e r theorem of d i s t r i b u t i o n s t a t e s t h a t i f e a c h i n p u t i s p a i d t h e v a l u e of i t s marginal product (i.e., t h e v a l u e of t h e l a s t t t n i t produced by t h e l a s t u n i t of i n p u t ) , t h e t o t a l v a l u e o f o u t p u t i s e x h a u s t e d , i.e., l o n g r u n p r o f i t is zero.

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Solow approach:

Kendrick approach:

where A i s t h e parameter of t e c h n i c a l p r o g r e s s , Y , L, K a r e t h e

a g g r e g a t e l e v e l of o u t p u t , l a b o u r and c a p i t a l ;

a

and

B a r e t h e income

s h a r e s of l a b o u r and c a p i t a l e l a s t i c i t y w i t h t h e r e l a t i o n a

+

B

=

1;

dY, dL, dK a r e t h e time d e r i v a t i v e s of Y , L and K ;

w

and

r

a r e t h e wage r a t e and r a t e of r e t u r n on c a p i t a l r e s p e c t i v e l y ; v a r i a b l e s w i t h

s u b s c r i p t 1 r e f e r t o t h e c u r r e n t p e r i o d and w i t h s u b s c r i p t

0

t o t h e base period.

Prom E q u a t i o n ( 3 a ) one c a n d i r e c t l y e s t i m a t e t h e p a r a m e t e r A , which a c c o r d i n g t o Solow i s t h e measure of TFP under c e r t a i n c o n d i t i o n s . Growth r a t e s i n A w i l l p r o v i d e t h e measure f o r t o t a l f a c t o r

p r o d u c t i v i t y growth ( s e e Equation 3b). I n Equation ( 4 ) , t h e TFP i n d e x e s c o n s i s t of t h e r a t i o of two s e p a r a t e i n d e x e s

-

o n e f o r o u t p u t and a n o t h e r f o r t o t a l i n p u t . The TFP i n d e x is d e r i v e d by s u b t r a c t i n g u n i t y from t h e o u t p u t / i n p u t r a t i o . In E q u a t i o n s (3a) and ( 4 ) , t h e p r o d u c t i v i t y growth is t h e " r e s i d u a l " i n o u t p u t t h a t is n o t e x p l a i n e d by changes i n i n p u t s . T h i s r e s i d u a l i s a t t r i b u t e d t o growth i n t e c h n i c a l p r o g r e s s .

A more r e c e n t development w i t h i n t h e p r o d u c t i o n f u n c t i o n o r

n e o c l a s s i c a l t r a d i t i o n , and one t h a t h a s b o t h t h e o r e t i c a l and

econometric imp1 i c a t i o n s f o r t h e measurement of p r o d u c t i v i t y ,

i s

t h e c o s t f u n c t i o n model based on t h e " d u a l i t y " t h e o r y . l o 'The b a s i c i d e a behind t h e d u a l i t y t h e o r y i s t h a t p r o d u c t i o n and c o s t f u n c t i o n s a r e m i r r o r images of each o t h e r . The c o s t f u n c t i o n i s a n e q u i v a l e n t s p e c i f i c a t i o n and i s a s e q u a l l y fundamental t o t h e u n d e r l y i n g

p r o d u c t i o n technology a s t h e p r o d u c t i o n f u n c t i o n , under t h e assumption of c o s t minimization. l o In s i m p l e terms t h e d u a l i t y t h e o r y c o n f i r m t h a t t h e r e s u l t s of c o s t minimization f o r a g i v e n l e v e l of o u t p u t , o r o u t p u t maximization f o r a g i v e n l e v e l of i n p u t c o s t s , would b e t h e same. The b i g g e s t advantage of t h i s approach i s t h a t i t c a n h a n d l e s i t u a t i o n s where t h e r e a r e numerous i n p u t s and where t h e p o s s i b i l i t i e s of s u b s t i t t i t i n g one i n p u t f o r a n o t h e r a r e g r e a t and t h e s c o p e of

economies of s c a l e i s l a r g e . It u s e s a n a c c o u n t i n g framework r a t h e r t h a n an e s t i m a t i n g framework.

Denoting Y a s o u t p u t ,

XI, X2.. .Xn

a s v a r i o u s i n p u t s , and T a s technology, we can e x p r e s s p r o d u c t i o n f u n c t i o n i m p l i c i t l y i n t h e f o l l o w i n g form based on t h e work of Caves e t a l : l l

Using t h e d u a l i t y t h e o r y developed by McFadden, l2

w e

c a n c o n v e r t

(5)

i n t o t h e f o l l o w i n g c o s t f u n c t i o n .

(9)

where

W 1

is t h e u n i t p r i c e of i n p u t

X 1

and C i s t h e t o t a l c o s t s u c h t h a t

D i f f e r e n t i a t i n g t h e c o s t f u n c t i o n w i t h r e s p e c t t o T and t h r o u g h v a r i o u s s u b s t i t u t i o n s and mathematical o p e r a t i o n s , c o n s t r u c t i o n p r o d u c t i v i t y growth between two p e r i o d s c a n b e e x p r e s s e d i n t h e f o l l o w i n g form:

*

TFP growth = ( - ( l n gt-ln gtWl)) n I n t e r p r e t i n g Equation ( 8 ) , t h e t o t a l f a c t o r p r o d u c t i v i t y growth i n t w o p e r i o d s i s t h e r e d u c t i o n i n t o t a l c o s t of o u t p u t t h a t i s n o t e x p l a i n e d by changes i n i n p u t c o s t s .

PROBLEMS OF PRODUCTIVITY MEASUREMENT I N CONSTRUCTION

I n t h e p a s t , economic s t u d i e s of p r o d u c t i v i t y i n c o n s t r u c t i o n h a v e d e a l t . w i t 1 1 l a b o u r p r o d u c t i v i t y . It c a n b e measured e i t h e r i n p h y s i c a l q u a n t i t i e s o r i n d o l l a r terms. For example, p r o d u c t i v i t y of a mason working 8 h o u r s a day c a n b e measured by d e t e r m i n i n g t h e number o f h o u r s h e r e q u i r e s t o l a y 100 l i n e a r f e e t of b r i c k w a l l and h i s

p r o d u c t i v i t y growth c a n b e measured by comparing t h e number of h o u r s r e q u i r e d t o l a y 100 l i n e a r f e e t of w a l l i n p e r i o d 1, compared t o p e r i o d

2.

But

i n

t h e c a s e of t h e c o n s t r u c t i o n i n d u s t r y , where o u t p u t s of

d i f f e r e n t components a r e s o d i v e r s e (e.g., w a l l c o n s t r u c t i o n v e r s u s a h e a t i n g , v e n t i l a t i o n and a i r c o n d i t i o n i n g system) and i n p u t s a r e s o d i f f e r e n t i n q u a l i t y and t y p e (e.g. d e s i g n e r s v e r s u s c a r p e n t e r s ) , i t

i s d i f f i c u l t t o measure p r o d u c t i v i t y i n p h y s i c a l q u a n t i t i e s . I n t h i s c a s e , o u t p u t and i n p u t q u a n t i t i e s have t o be c o n v e r t e d i n t o d o l l a r v a l u e s . But h e r e a g a i n t h e r e i s

a

problem. The v a l u e o f t h e o u t p u t may i n c r e a s e n o t because of a r e a l i n c r e a s e i n o u t p u t , b u t because o f

i n f l a t i o n . To remove t h e e f f e c t s o f i n f l a t i o n f r o m t h e o u t p u t v a l u e , t h e money v a l u e of o u t p u t must be d e f l a t e d by a n a p p r o p r i a t e p r i c e index. S i n c e t h e o u t p u t i s n o t homogeneous, i t

i s

n o t a p p r o p r i a t e t o d e f l a t e t h e o u t p u t by a s i n g l e t y p e of p r i c e d e f l a t o r . For example,

i t i s n o t a p p r o p r i a t e t o d e f l a t e o u t p u t of b r i d g e c o n s t r u c t i o n by p r i c e indexes based on s i n g l e house p r i c e s . F o r t u n a t e l y , i n Canada w e have developed s e p a r a t e o u t p u t p r i c e d e f l a t o r s f o r new housing, n o w r e s i d e n t i a l c o n s t r u c t i o n ( e x c l u d i n g e n g i n e e r i n g ) , and e n g i n e e r i n g c o n s t r u c t i o n s u c h as highway c o n s t r u c t i o n and

e l e c t r i c

u t i l i t y

c o n s t r u c t i o n . l 3 A s i m i l a r problem is d e f l a t i n g t h e p r i c e s of a wide range of d i f f e r e n t i n p u t s .

Furthermore, p r i c e changes c a n o c c u r because of changes i n t h e q u a l i t y of o u t p u t produced o r t h e q u a l i t y of i n p u t s used. For i n s t a n c e , t h e

-

*

F o r tile d e r i v a t i o n o f f i n a l p r o d u c t i v i t y growth e q u a t i o n , s e e Ref. 11.

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p r i c e of s i n g l e f a m i l y homes may g o up as a r e s u l t of t h e i n c l u s i o n o f a p r e v i o u s l y o p t i o n a l item such a s a f i r e p l a c e . Adjustments f o r

q u a l i t y changes must b e made b e f o r e comparing p r o d u c t i v i t y between two p e r i o d s . U n f o r t u n a t e l y , t h e s e a d j u s t m e n t s a r e u s u a l l y ignored. T h e r e i s a n o t h e r d e e p e r problem of p r o d u c t i v i t y measurement i n c o n s t r u c t i o n which h a s been i g n o r e d e n t i r e l y . P r o d u c t i v i t y s t u d i e s i n g e n e r a l d e a l w i t h v a l u e s of c u r r e n t o u t p u t s and i n p u t s b e c a u s e i n p u t s a r e c o n v e r t e d i n t o o u t p u t s i n s t a n t l y and t h e f i n a l o u t p u t

i s

consumed i n a s h o r t p e r i o d of t i m e . I n t h e c a s e of c o n s t r u c t i o n t h e f i n a l o u t p u t s a r e d u r a b l e goods t h a t p r o v i d e s e r v i c e s o v e r a l o n g p e r i o d of t i m e . Changes i n d e s i g n o r m a t e r i a l s may r e d u c e t h e i n i t i a l c o s t s and hence i n c r e a s e s h o r t - t e r m p r o d u c t i v i t y b u t t h e y may i n c r e a s e t h e

r u n n i n g and replacement c o s t s i n t h e f u t u r e and may d e t e r i o r t e o r d i s r u p t t h e performance of b u i l d i n g s . F i n a l l y , t h e r e i s a problem of measuring t h e c a p i t a l i n p u t . C a p i t a l s t o c k i n t h e form of s t r u c t u r e s , machinery and equipment i s used i n t h e p r o d u c t i o n process. How much of t h i s s t o c k i s used p e r p e r i o d o f time, i s d i f f i c u l t t o

determine.

Thus, a p a r t from t h e problem of c h o o s i n g t h e a p p r o p r i a t e methods t o measure c o n s t r u c t i o n p r o d u c t i v i t y , t h e r e a r e o t h e r problems r e l a t i n g t o t h e measurements of o u t p u t s and inputs*.

TRENDS I N CONSTKUCTION PRODUCTIVITY I N CANADA

The d i s c u s s i o n i n t h i s s e c t i o n i s l i m i t e d t o economic s t u d i e s on c o n s t r u c t i o n p r o d u c t i v i t y . O t h e r approaches t o p r o d u c t i v i t y s u c h as t h o s e of work-studies w i l l n o t be d e a l t w i t h . Those i n t e r e s t e d i n work-studies measurement of p r o d u c t i v i t y s h o u l d c o n s u l t t h e work by F.J. Drewin. l 4

The m a j o r i t y of t h e p r o d u c t i v i t y s t u d i e s i n Canada have been undertaken a t t h e a g g r e g a t e l e v e l . Whenever e f f o r t s were made t o measure p r o d u c t i v i t y a t t h e s e c t o r a l l e v e l , t h e c o n s t r u c t i o n s e c t o r was l e f t o u t e i t h e r because of t h e r e l a t i v e e a s i n e s s of measurement o f p r o d u c t i v i t y i n o t h e r s e c t o r s , o r because of t h e n o w a v a i l a b i l i t y o f d a t a f o r c o n s t r u c t i o n i n p u t s and o u t p n t s . Recently t h e Economic Council of Canada (ECC) undertook a s e r i e s of s t u d i e s a n a l y z i n g p r o d u c t i v i t y problems i n Canada. 16-18

Using r e g r e s s i o n a n a l y s i s , o n e of t h e s e s t u d i e s i 7 e s t i m a t e d l a b o u r p r o d u c t i v i t y growth and i t s s o u r c e s f o r t h e p e r i o d 1957-75 and t h r e e s h o r t p e r i o d s 1957-1966, 1966-1974 and 1974-1976. The s t u d y showed t h a t l a b o u r p r o d u c t i v i t y improvements i n c o n s t r u c t i o n lagged behind t h o s e r e c o r d e d by m a n u f a c t u r i n g and primary i n d u s t r i e s . Between 1957-1975, l a b o u r p r o d u c t i v i t y i n c o n s t r u c t i o n grew a n n u a l l y

a t

t h e r a t e of 1.65%, compared w i t h 3.23% f o r manufacturing,

6.53%

f o r mining, 6.81% f o r f o r e s t r y , 6.28% f o r u t i l i t y , 2.72% f o r t r a d e and 0.63% f o r f i n a n c e , i n s u r a n c e and r e a l e s t a t e . Thus, t h e c o n s t r u c t i o n i n d u s t r y recorded t h e l o w e s t growth r a t e , e x c e p t f o r f i n a n c e , i n s u r a n c e and r e a l e s t a t e . The r e s u l t s f o r t h e p e r i o d 1957-66 w e r e s i m i l a r . However, c o n s t r u c t i o n p r o d u c t i v i t y g a i n s improved i n t h e 1966-73 p e r i o d ( t h i s was a l s o t h e c a s e i n o t h e r s e c t o r s ) t o a n a n n u a l average of 2.53%, s t i l l r e l a t i v e l y weak. T h i s i n c r e a s e o c c u r r e d

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mainly b e c a u s e of t h e g r e a t e r u s e of c a p i t a l , r e f l e c t e d i n t h e s h a r p p e r c e n t a g e s h i f t i n c a p i t a l - l a b o u r r a t i o from a d e c l i n e of 0.52% i n 1957-66 t o a n i n c r e a s e of 3.56% i n t h e 1966-73 period. The

c o n s t r u c t i o n p r o d u c t i v i t y growth a g a i n f e l l 0.6% d u r i n g 1974-1975.

Though c o n s t r u c t i o n p r o d u c t i v i t y improvements have n o t k e p t p a c e w i t h t h e p r o d u c t i v i t y improvements i n o t h e r i n d u s t r i e s , i t s r e l a t i v e

r a n k i n g of a v e r a g e a n n u a l growrh among t h e t e n g r o u p s h a s remained c o n s t a n t . The r a n k i n g of a g r i c u l t u r e h a s f a l l e n from 2 t o

4

between 1957-66 and 1967-73, t h a t of t r a n s p o r t a t i o n from

5

t o 6, s e r v i c e s f r o m 9 t o 1 0 , b u t t h e r a n k i n g of c o n s t r u c t i o n remained a t 8 f o r t h e s e two p e r i o d s .

SOURCES OF CONSTRUCTION PRODUCTIVITY

The ECC s t u d y a l s o analyzed t h e s o u r c e s of p r o d u c t i v i t y growth, i n c l u d i n g t e c h n i c a l p r o g r e s s , c o n t r i b u t i o n by i n p u t s , c a p a c i t y

u t i l i z a t i o n , q u a l i t y and r e t u r n t o s c a l e . I n c o n s t r u c t i o n , t e c h n i c a l p r o g r e s s c o n t r i b u t e d a b o u t 70% o f l a b o u r p r o d u c t i v i t y growth. Of

t h e

remaining 30%, t h e s o u r c e t h a t c o n t r i b u t e d most t o p r o d u c t i v i t y improvement was c a p i t a l , f o l l o w e d by m a t e r i a l s . The economics o f s c a l e f a c t o r and t h e r e c e n t rise i n energy p r i c e s n e g a t i v e l y a f f e c t e d t h e growth of c o n s t r u c t i o n p r o d u c t i v i t y . 1 8 The c o n t r i b u t i o n o f

technology t o p r o d u c t i v i t y g a i n s i n manufacturing (40%), a g r i c u l t u r e (13%); and mining ( 9 % ) w e r e much s m a l l e r . T e c h n i c a l p r o g r e s s was t h e l a r g e s t s o u r c e of improvement i n p r o d u c t i v i t y (80%) i n f o r e s t r y . From t h e s e comparisons w e c a n s a y t h a t t h e c o n s t r u c t i o n i n d u s t r y

is

n o t t e c h n o l o g i c a l l y s t a g n a n t , a s i t h a s been accused of being.

The f o r e g o i n g r e s u l t s a r e b a s e d o n s i n g l e f a c t o r p r o d u c t i v i t y .

T a b l e s 1 and 2 p r o v i d e c o n s t r u c t i o n p r o d u c t i v i t y growth r a t e s based on t o t a l f a c t o r p r o d u c t i v i t y . T a b l e 1 a l s o p r o v i d e s a comparison of t o t a l f a c t o r p r o d u c t i v i t y growth based on t h e i n p u t - o u t p u t c o n c e p t w i t h TFP growth based on t h e t r a d i t i o n a l l a b o u r f a c t o r p r o d u c t i v i t y measure. It is c l e a r from Table 1 t h a t f o r t h e p e r i o d s 1961-66, 1966-7l, and 1971-76, t h e t o t a l p r o d u c t i v i t y measure g i v e s h i g h e r p r o d u c t i v i t y growth r a t e s f o r c o n s t r u c t i o n t h a n t r a d i t i o n a l , l a b o u r , p r o d u c t i v i t y . T h i s i s b e c a u s e t h e c o n s t r u c t i o n i n d u s t r y h a s s u c h s t r o n g l i n k a g e s w i t h o t h e r i n d u s t r i e s f o r m a t e r i a l s and s e r v i c e s . S i n c e t h e t r a d i t i o n a l 1 abour p r o d u c t i v i t y measure d o e s n o t t a k e i n t o account t h e s e l i n k a g e s , t h e s i n g l e f a c t o r measure u n d e r e s t i m a t e s p r o d u c t i v i t y growth. Using E q u a t i o n (81, t h e t o t a l f a c t o r p r o d u c t i v i t y growth i n c o n s t r u c t i o n , measured by c o s t f u n c t i o n s , h a s been e s t i m a t e d f o r 1971 through 1980. It i s i n t e r e s t i n g t o n o t e t h a t c o n s t r u c t i o n p r o d u c t i v i t y growth r a t e f o r t h e p e r i o d 1971-76 was e s t i m a t e d a t 1.1882, which i s very c l o s e t o t h a t r e c o r d e d i n T a b l e 1. C o n s t r u c t i o n recorded a n e g a t i v e p r o d u c t i v i t y growth f o r t h e p e r i o d 1976-1980

(-0.4 1%). The h i g h e s t p r o d u c t l v i t y improvement measured was r e a c h e d i n 1977, when Canadian b u i l d i n g s t a r t s reached t h e i r peak. T h i s i m p l i e s t h a t t h e TFP i n c o n s t r u c t i o n i s g r e a t l y a f f e c t e d by c y c l i c a l changes i n o u t p u t l e v e l s , a c o n c l u s i o n a l s o reached i n t h e ECC

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T a b l e 1. Comparison o f Average Annual Growth R a t e s

T r a d i t i o n a l Measure Input-Ou t p u t Measure (Labour P r o d u c t i v i t y ) (TFP) 1961-66 1 9 6 6 - n 1971-76 1961-66 1 9 6 6 - n 1971-76 - - - . A g r i c u l t u r e 12.2 0.9 2.5 7.8 3.5 2.7 F o r e s t r y 1.6 5.8 0.9 2.5 3.9 1.4 F i s h i n g a n d h u n t i n g -3.7 1.2 -3.0 -1 - 3 0.9

0.2

Metal mines 6.1 8.7 -3.4 1.7 0.06 1.3 T r a n s p o r t a t i o n equipment 3.7 8.8 4.3 4.0 4.5 3.7 Woods p r o d u c t s 3.3 2.5 2.1 3.9 2.5 1.4 Chemicals 5.3 3.8 2.5 4.4 2.9 2.4 C o n s t r u c t i o n 2.0 2.8 0.6 2.9 2.7 1.6 F i n a n c e , i n s u r a n c e a n d real e s t a t e 0.4 0.5 -2.2 0.7 1.1 -0.7 Aggregate ( i n c l . o t h e r i n d u s t r i e s ) 3.3 2.8 1.4 3.3 2.8 2.0 Source: P o s t n e r a n d Wesa [61. T a b l e 2. TFP Growth i n Canadian C o n s t r u c t i o n , 1971-1980 - -

Year Rate of P r o d u c t i v i t y Change P r o d u c t i v i t y Index

%

Source: A u t h o r ' s R e s e a r c h Summary and Concluding Remarks

T h i s paper h a s reviewed v a r i o u s c o n c e p t s of p r o d u c t i v i t y and methods o f m e a s u r i n g c o i l s t r u c t i o n p r o d u c t i v i t y . It h a s a l s o b r i e f l y d i s c u s s e d t h e problems a s s o c i a t e d w i t h measuring c o n s t r u c t i o n p r o d u c t i v i t y . T r e n d s a n d s o u r c e s of c o n s t r u c t i o n p r o d u c t i v i t y g r o w t h i n Canada w e r e a n a l y z e d . It was found t h a t c o n s t r u c t i o n p r o d u c t i v i t y growth i n Canada l a g g e d b e h i n d t h e g r o w t h o f p r o d u c t i v i t y i n a l l m a j o r s e c t o r s

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e x c e p t f i n a n c e , i n s u r a n c e and r e a l estate. With r e g a r d t o s o u r c e s o f c o n s t r u c t i o n p r o d u c t i v i t y improvements, t e c h n i c a l p r o g r e s s w a s found t o b e t h e major s o u r c e , f o l l o w e d by c a p i t a l , m a t e r i a l s and l a b o u r q u a l i t y . The c o n t r i b u t i o n of c a p a c i t y u t i l i z a t i o n w a s n o t c o n s i s t e n t ,

i t v a r i e d from o n e p e r i o d t o another. Lack o f economies o f s c a l e i n c o n s t r u c t i o n was a r e t a r d i n g f a c t o r . T o t a l f a c t o r p r o d u c t i v i t y measures p r o v i d e d more c o n s i s t e n t r e s u l t s t h a n s i n g l e f a c t o r p r o d u c t i v i t y measures. Hence, i t is s u g g e s t e d t h a t g r e a t e r u s e b e made of t o t a l f a c t o r p r o d u c t i v i t y measures t o d e t e r m i n e t h e o v e r a l l e f f i c i e n c y of t h e c o n s t r u c t i o n i n d u s t r y . KEFERENCES

1. J.D. Hodgens, S e c r e t a r y under Richard Nixon's A d m i n i s t r a t i o n , a t t h e Conference on Measuring P r o d u c t i v i t y i n t h e C o n s t r u c t i o n I n d u s t r y , Washington, D.C., September 1972.

2.

Douglas C. Dacy, " P r o d u c t i v i t y and P r i c e Trends i n C o n s t r u c t i o n ~ i n E e 1947",

The

Review of ~ c b n o r n i c s and S t a t i s t i c s , Vol. 47, November 1964, pp. 406-411.

3. Arthur M. Watkins, "Why Homes Cost Too Much", The Saturday Evening Post (September 21, 1963), p. 19.

-

4. A.S. Rakhra and

A.M.

Wilson, " C o n s t r u c t i o n and Its Economic Linkages", C o n s t r u c t i o n Canada, 8 3 01, pp. 8-9.

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