While official statistics on the output of the
construction industry capture on-site activities of contractors and
subcontractors, the role of the industry linking suppliers of materials,
machinery, products, services and other inputs is also important. These two
views have been called broad and narrow, with the narrow industry defined as
on-site work and the broad industry as the supply chain of materials, products
and assemblies, and professional services. There are, however, surprisingly few
studies that have quantified the relationship between the narrow and broad
definitions of construction.
Based on the three studies that have quantified the
relationship between the narrow and broad definitions of construction it is reasonable
to conclude the wider construction industry is around twice the size of the
narrow industry. Ive and Gruneberg in The
Economics of the Modern Construction Sector were the first to argue a narrow definition of the construction
industry includes only those firms undertaking on-site activity whereas a broad definition includes many firms
from other industries involved in production of the built environment. They
then went through the SIC classification to identify the other industries
involved at the four digit SIC group level and found 11.2 percent of all employees are
engaged in production of the built environment, compared to 4.7 percent in the
construction category alone.
The 2003 UK report by David Pearce on The Social and Economic Value of
Construction used their methodology and found, in the five industry groups
included in the broad definition, contractors accounted for around half the
total of employment, the number of firms, their turnover and value added. An Australian study in 1999, Mapping the Building and Construction
Product System in Australia by the Australian
Expert Group on Industry Studies, found the narrow industry is 51 percent of
income and 48 percent of employment in the broad industry.
While it would be preferable to have regular, detailed
data on the size and scope of the wider construction industry/sector/system, at
present that is not available. Therefore a general rule of thumb is an
alternative approach. Based on the studies above it would be reasonable to
conclude the wider construction industry is around twice the size of the narrow
industry. Note this is not an accurate measure of the wider industry, but a rough
and ready estimate of its approximate scope and size. While this rule needs to
be tested, it is likely to apply across many or most countries most of the
time.
This rule of thumb is a useful yardstick for four
reasons:
1. It does not have to be exact to
convey the importance of the wider construction industry to the economy;
2. It is based on regular and
readily available data on (the narrow definition of) construction industry
output, thus avoiding the infrequent nature of the input-output data used to
calculate multipliers and study industry linkages;
3. It naturally varies over time
with fluctuations in both the business cycle and the building cycle,
emphasising the macroeconomic importance of the industry; and
4. It is not sensitive to local
conditions, in that the share of the different industries included in the total
will vary across countries, and the output shares of residential and
non-residential building and engineering construction will vary over time, but
the cumulative contribution of these industries to economic activity can still
be estimated.
There is a way to turn this rough estimate into a more
credible measure, and that would be through the preparation of what is known as
a satellite account, which reclassifies expenditures usually presented in
different industry groupings into a single sector. These are used to provide
more detail on sectors that are not adequately represented in the national
accounts. The System of National Accounts
published by the UN (2008), which provides guidelines for national
statistical agencies, in Chapter 29 explains the reasons for preparation of satellite
accounts gives examples of their presentation. The process is similar to that
used in Pearce (2003) where SIC data across industries is aggregated, but is
done at a higher level of detail using the supply and use data from the
national accounts.
At this
time the most widely found satellite account is for tourism (nine countries,
all irregular, often jointly funded by industry and users), but they have been
produced or proposed for a range of other industries such as health, the
environment, R&D, information technology, infrastructure, non-profit
institutions, human capital and households.
While these are not produced annually, and are sometimes not feasible at high levels of disaggregation, these accounts allow re-use of existing data and thus maximise its usefulness. With the funding restrictions facing statistical agencies it would be important to focus on the most important contributors to the construction industry. A version of satellite accounts known as key sector accounts selects a group of products or industries that are economically important and aggregates their data, and that could be tried as another approach.
While these are not produced annually, and are sometimes not feasible at high levels of disaggregation, these accounts allow re-use of existing data and thus maximise its usefulness. With the funding restrictions facing statistical agencies it would be important to focus on the most important contributors to the construction industry. A version of satellite accounts known as key sector accounts selects a group of products or industries that are economically important and aggregates their data, and that could be tried as another approach.
The construction
industry can be depicted in a variety of ways, but emphasising how the built
environment is created and managed through the planning, project initiation, design, fabrication and
construction, operation and management stages is the most representative of the built environment sector
as a whole. The complexity and number of activities involved in the built
environment has, to date, prevented a coherent view of the industry developing.
In turn, this has made efforts to improve the performance of the industry
largely ineffectual.
The term that arguably best encompasses the broad
industry, and includes the extraordinarily large number and diverse range of participants involved
in the creation and maintenance of the built environment, from suppliers to end
users, is the built environment sector. This would also
be the obvious choice of a name for a set of satellite accounts.
AEGIS, 1999. Mapping the Building and Construction
Product System in Australia. Australian Expert Group on Industry Studies,
Department of Industry, Science and Resources, Canberra.
Ive, G.J.
and Gruneberg, S.L. 2000. The Economics
of the Modern Construction Sector, London: Macmillan.
Pearce,
D. 2003. The Social and Economic Value of
Construction: The Construction Industry’s Contribution to Sustainable
Development, nCrisp, London.
