Construction’s productivity puzzle:
Cheap labour and the high fixed costs of technology are slowing growth
Since the financial crisis, productivity growth has slowed across the rich world. But one industry in particular has been lagging for a much longer period: construction. Over the past twenty years, the value added per hour worked in the sector globally has risen at a quarter of the rate of manufacturing. According to a recent report by McKinsey, a consultancy, if productivity growth in the sector had matched that in manufacturing over the past 20 years, the world would be $1.6trn—2% of GDP—richer each year.
Tumbling levels of productivity is easier to explain in less wealthy countries. In Saudi Arabia, for example, it is cheaper to import low-paid workers from India or Pakistan than to buy machinery. Other less developed countries where corruption is a big issue, such as Brazil and Mexico, also do badly. But some do very well. Over the past two decades, China has seen its labour productivity in the construction sector grow by almost 7% a year. But most of that is simply catch-up growth because of a change from extremely labour-intensive traditional methods to the modern sort used in the West since the 1960s.
