Trends of productivity growth in the construction industry across Europe, US and Japan

Abstract

Productivity is a key driver for economic growth and prosperity in any country. The pursuit of productivity growth requires an understanding of the factors affecting productivity. The trend of productivity growth, along with the possible factors underlying such growth across Europe, the US and Japan, is thus examined. In particular, there is a focus on comparing the productivity performance of the construction sector to that of other industries. Using the recently released EU KLEMS 1 1. KLEMS refers to the first letters of inputs to the production process, i.e. Capital (K), Labour (L), Energy (E), Material (M) and business Services (S). database, 2 2. The database is publicly available at www.euklems.net. The basic data files for selected OECD countries were downloaded from the EU KLEMS database. a growth accounting framework was adopted to assess the contribution of the following factors to productivity growth (during 1971–2005): capital, labour quality and total factor productivity (TFP). It was found that there is a general slowdown in labour productivity growth in total industries including construction across major OECD countries, with the exception of the UK. The differences in labour productivity growth between construction and total industries can be largely explained by construction’s poor TFP performance. With the exception of the UK, TFP negatively contributed to labour productivity growth in the period 1990–2005, suggesting that the industry has become less efficient in combining the factors of production. That phenomenon seems to be consistent across all selected countries and warrants further investigation. Indeed a better understanding of the factors underlying productivity growth in OECD countries is a prerequisite for effective intervention of policy makers to support sustained productivity growth.

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