PRODUCTIVITY AND LABOUR FORCE

Productivity And Labour Force Construction Industry Analysis

Productivity and Labour Force Construction Industry Analysis

Introduction

Improving the productivity of the construction industry is at the heart of the UK government's and industry's agenda (e.g. Department of Trade and Industry? 2003; nCRISP? 2004). Despite this focus? there is not always a common understanding of how to define and measure productivity. This paper presents an overview of methods to measure productivity? relates these to current practice in the literature? highlights some of the shortcomings of the application of productivity measures? and gives guidance on data requirements and estimation techniques with the aim of influencing the research agenda on the measurement of productivity in the construction industry.

Framework for measuring productivity in the construction industry

Productivity describes the output potential of a production process conditional upon its inputs. Single-factor productivity measures such as ALP look at the impact of one factor input (labour)? whereas total (multi-factor) productivity measures take into account the impact of all inputs on output.

Both measures have advantages and disadvantages and are appropriate for different purposes. Single-factor productivity measures have been adopted as indicators for key government policy objectives? are relatively easy to measure and in common use.

Economists tend to prefer estimating multi-factor production functions for more in-depth productivity analysis where there is a need to identify separately the contribution of all determinants to growth (including intangible inputs such as management? skills and technological progress? as well as measurable physical inputs such as labour and capital). However? the data and measurement requirements for such an approach are considerably more demanding? and it cannot yet be claimed that this still evolving methodology can guarantee exact results.

In practice? productivity measurement studies tend to use both single and TFP measures. ALP can be seen as a first approximation? with more sophisticated measures being employed for more detailed analysis of what underlies it in terms of key determinants such as capital intensity and TFP.

Average labour productivity (ALP)

The calculation of ALP involves dividing some measure of output (gross value added and sometimes gross output) by labour input (number of workers? or hours).

ALP measures have two big advantages. First? there is an obvious welfare interpretation? e.g. income for hours worked? or output for a given labour input. Governments have obvious incentives to maximize the gross domestic product (GDP) per capita? which can be expressed as the employment rate times GDP per worker (the national average ALP). ALP is distributed as wages and profits? and governments have an interest in increasing both. In other words? ALP is a measure of achievement of a key government objective as much as it is a measure of productivity in a technical sense. Second? it is easy to calculate and often feasible where the estimation of a production function is not due to data limitations.

It is worth spelling out in some detail some of the drawbacks of the above ALP measure of productivity. Its main limitation is that as a single factor measure it is unsurprisingly not well suited to the ...