Thursday, 22 February 2018

Australian Construction Productivity in the 1980s

Construction Industry Productivity in Australia



In 1992 and 2003 I contributed to the research published on construction industry productivity by two government inquiries. The first was the Royal Commission into Productivity in the Building Industry in NSW (1991-1992), and the second was the Royal Commission into the Building and Construction Industry for the Commonwealth Government (2001-03). These posts have the relevant parts of those publications, which are reviews of the then current data and research.

This first post is from a paper that covered the 1980s and was originally published as Productivity and the Australian Construction Industry by the Royal Commission into Productivity in the Building Industry in NSW. 

The second post covers the 1990s and was an Appendix in a Discussion Paper from the Royal Commission into the Building and Construction Industry for the Commonwealth Government.

A third paper in this series is a conference paper of mine from 1999 called Recalculation of Australian Construction Productivity which looks at changes in output per person in the trades. The document can be downloaded from a Dropbox file here.


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Australian Construction Productivity in the 1980s



In 1990 the New South Wales (NSW) Government set up a Royal Commission Into Productivity in the Building Industry in New South Wales (RCBCI), with three terms of reference: 

  1. The nature, extent and effects of practices and conduct in or in relation to the building industry which may significantly affect efficiency and productivity within that industry.
  2. The nature, extent and effects of illegal activities that occur in, or in relation to, the building industry in New South Wales, including intimidation and violence, secret commissions, extortion, and other corrupt conduct.
  3. Whether ... there are any measures ... to increase productivity and efficiency within the building industry, and deter illegal activities in, or in relation to that industry (RCBI 1992, Vol. 7. p. 3).

Although this inquiry focused on industrial relations issues and the illegal activities of both unions and contractors, policy and research analysts were responsible for producing research papers and discussion papers.  Information was gathered about the structure, organisation and practices of the industry from a wide range of industry surveys, individual constructors, and 20 major projects.

In the RCBI Discussion Paper on productivity data from the ABS and other sources was collected, and a strong case made that the performance of the industry was poor and getting worse:

This downward trend in labour productivity cannot be attributed to the upsurge of building activity during this period, although there are cyclical effects that must be taken into account.  The general pattern is one of increases in productivity as economic growth recovers from a trough, and as under-utilised capacity (both labour and capital) is brought back into production, followed by declining productivity as the economy reaches the peak of a business cycle.

Since 1984-85 the construction industry's productivity performance has become significantly worse, both relative to other industries and when compared to its own productivity growth between 1974-75 and 1984-85.  Construction fell to seventh of the eight industries, outperforming only recreation and other services. It should be noted that several other industries had substantial productivity growth during this period, in particular mining and utilities.  Changes in technology, methods of operation and work practices (mining) and labour shedding (utilities) have had substantial positive effects in these industries.  In construction, by contrast, despite the increase in offsite fabrication and modular construction methods and the increased use of plant and equipment on construction sites, productivity has declined. 

These results show that the construction industry's productivity growth has lagged behind the productivity growth rates of other industries in Australia... This research supports the conclusion from the foregoing analysis based on ABS data that the construction industry productivity performance has been generally poor and is getting worse (RCBI 1991: 41).

The evidence in the paper were tables of Australian Bureau of Statistics (ABS) and Bureau of Industry Economics (BIE) data. (The BIE merged with the Industry Commission to form the Productivity Commission in 1998).


Table 1.  Average Annual Rates of Growth in Labour Productivity 1974-75 to 1989-90 by Industry, per cent per annum
Industry
Output per Person Employed
Output Per
Hour Worked
Agriculture
Mining
Manufacturing
Electricity, Gas and Water
Construction
Wholesale and Retail Trade
Transport, Storage, Communication
Recreation & Other Services
0.9
2.5
2.9
3.7
1.9
0.8
3.9
-0.4
1.8
2.1
2.9
4.1
1.9
1.1
3.9
-0.7
Source:  Australian National Accounts: Gross Product, Employment and Hours Worked 1989-90, ABS Cat. No. 5211.0.


Table 2.  Average Annual Rates of Growth in Labour Productivity from 1966-67 to 1988-89 by Industry, per cent per annum
Industry
1966-67 to
1988-89
1984-85 to
1988-89
Agriculture
Mining
Manufacturing
Electricity, Gas and Water
Construction
Wholesale and Retail Trade
Transport, Storage, Communication
Recreation & Other Services
2.0
3.2
3.0
4.3
1.2
1.3
4.3
-0.1
-2.0
6.7
2.8
7.1
0.3
-2.1
4.5
-2.9
Source:  Lattimore, R., 1990.  Capital and Output in the Australian Business Sector, Research Paper 1, Bureau of Industry Economics, Canberra, p. 95.


Table 3.  Labour Productivity Growth by Sector. Annual Average Rates of Growth of Productivity 1974-79, 1979-83, 1983-88.
ASIC Divisions
Growth of Output
Per Person
Growth of Output
Per Hour Worked

'74-79
'79-83
'83-88
'74-79
'79-83
'83-88
A: Agriculture, forestry, fishing
3.5
3.3
-1.7
3.8
3.7
-1.0
B: Mining
1.9
-1.0
7.4
2.0
-1.4
5.5
C: Manufacturing
3.3
2.6
3.2
3.5
3.2
2.4
D: Electricity, gas & water
1.7
2.7
7.1
1.9
3.9
6.8
E: Construction
3.0
4.0
0.1
3.9
3.9
-0.7
F: Wholesale & retail trade
0.0
2.4
-1.0
0.3
2.9
-0.9
G,H: Transport, storage &
communication
4.3
2.8
4.6
5.0
3.2
4.5
I: Finance, property & business
services
-0.3
-0.2
0.7
0.0
0.0
0.0
J: Public Administration & Defence
-0.3
0.1
0.1
0.0
0.0
0.0
K: Community services
-0.1
1.1
0.1



L: Recereation, personal &   other services
-0.4
1.3
-2.8
-0.1
0.6
-2.8
                         ALL
1.7
1.4
1.1
2.0
1.9
1.1
Non-farm market
2.0
1.5
1.8
2.3
2.1
1.9
Market (A-H & L)
2.1
1.6
1.7
2.5
2.5
1.6
Market + I
1.9
1.4
1.5



All - J
1.8
1.4
1.1



Source: Dowrick, S. 1990. Explaining the Labour Productivity Slowdown of the 1980s, Australian Bulletin of Labour, 16 (3), p. 84.

The Commission's basic conclusion on efficiency and productivity was that industrial relations was the most important issue to address. The Final Report concluded that the public and confidential submissions:

amount to a powerful body of evidence in themselves to establish the proposition that the conduct of the members and officials of the former BWIU (NSW branch) very severely affect productivity and efficiency of the industry in this State, both because of the persistent disruption of projects and businesses and because of the restrictive work practices instituted and defended whilst work is actually proceeding (RCBI 1992: 5).

In this context finishing with a quote from someone who was in the trenches during the industrial warfare between the unions and the major contractors that erupted during the building boom in the 1980s seems appropriate:
Throughout the second half of the 1980s problems in industrial relations became acute, and could be traced back to the late 1960s and the early 1970s. To a large extent the problems arose from the nature of the industry, relatively unsophisticated, highly fragmented, poorly trained in some areas, and characterised too often by disregard of safety and basic human rights of workers, and industry structure. The structure of the industry resulted in the major contractors, who employed few people, making decisions through industry associations which the subcontractors (the major employers) and clients of the industry paid for. The costs of the decisions were recovered by the major contractors through time extension and price variation clauses in their contracts. Subcontractors had no direct relationships with clients, separated by the head contract/subcontract arrangements usual in the industry. The same contract structures tended to dissuade clients from taking an active interest in day to day operations on their construction projects (Barda 1995, 13).



Barda, Peter. 1995. In Principle. Australian Government Printing Service.
RCBI, 1991.  Productivity and the Australian Construction Industry, Royal Commission into Productivity in the Building Industry in New South Wales, Discussion Paper, Sydney.
RCBI, 1992.  Final Report, Royal Commission into Productivity in the Building Industry in New South Wales, Discussion Paper, Sydney.




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