This continues on from the previous post on Construction in the Australian Economy
For the Australian construction industry, the most
widely used data is the value of work done, shown in Figure 4, with the level
of activity in residential building, non-residential building and engineering
construction. The major phenomena of the last decade was the increase in
engineering work during mining boom 1 from 2001-2008 to a historically high
level, followed by a rapid rise and fall during mining boom 2 between
2010-2014.
Figure 4. Construction
Source: Construction Activity: Chain Volume Measures
ABS 8782.
With the end of mining boom, the role of the building sector
of the industry in the macroeconomic transition has been important as the
contribution from engineering declined. This transition from the resource
investment driven economy, when business investment peaked at an all-time high
of 18 per cent of GDP, has required growth in residential building to support
employment and output. That is currently being tested as the residential building
cycle appears to have peaked. There were significant compositional and
structural changes in construction during the mining boom, data on which is
provided in the annual ABS publication Australian
Industry, which uses a wide sample of private sector firms and non-profit
organizations to get financial data on balance sheet items. As explained by the
ABS:
This
publication presents estimates of the economic and financial performance of
Australian industry in 2015-16. The estimates are produced annually using a
combination of directly collected data from the annual Economic Activity Survey,
conducted by the Australian Bureau of Statistics, and Business Activity Statement
data provided by businesses to the Australian Taxation Office.
Australian
Industry provides a useful data set to compare
industries with, and to compare sectors (called divisions and sub-divisions)
within industries. The data excludes the public sector but includes non-profits
in industries like health and education, which are combined with private sector
business to get a total for the selected industries, and thus measures the
non-government part of the economy. The data goes back to 2006-07.
Figure 5 shows the Total All Selected Industries and the
Construction industry’s share for three of the data series produced:
employment; wages and salaries; and industry value added, a measure of output.
In 2015-16 Construction employed 1.04 million people, 9.7 per cent of the
total, paid 11.3 per cent of total wages and salaries, and contributed 10 8 per
cent to the output of the non-government sector. (These numbers differ from the
National Accounts data above due to the sources and samples used.)
Figure 5. Construction Share of Industry Output and
Employment
Source: Australian Industry ABS 8155.
The effect of the mining boom on the economy is an
ongoing macroeconomic story. However, while attention has been given to the effects
on the main macro indicators of gross domestic product, employment and
inflation of construction costs, there has been less discussion about the
effects on the building and construction industry itself. At a structural
level, there were significant changes in the composition of construction
industry output and employment over the last decade, and these have changed the
profile of the industry. Data on structural change is given in Australian Industry, for the three
industry divisions of Building construction, Heavy and civil engineering
construction, and Construction services, the trade subcontractors.
During the mining boom, Engineering construction more
than doubled its share of construction output, increasing from 12 per cent to
25 per cent between 2006-07 and 2013-14, when the boom peaked. Over that period
the share of Construction services fell from 67 to 55 per cent of the total,
while Building was around 20 per cent. By 2015-16 Engineering had fallen to 18
per cent and Building had increased to 24 percent, as shown in Figure 6.
Figure 6. Division Shares of Value Added
Source: Australian Industry ABS 8155.
After 2006 industry employment patterns also changed,
the mining boom saw Engineering increase to over 15 per cent and Construction
services decline to 68 per cent of the total. Total industry employment went
from 973,000 to 1,160,000 between 2006 and 2014, and that increase was due to
Engineering’s employment growth from 91,000 to 160,000.
Table 3. Construction Division Employment and Output
|
Employment,
'000s
|
Industry
value added, $mn
|
|||||||
|
Building
|
Engineering
|
Services
|
Total
|
Building
|
Engineering
|
Services
|
Total
|
|
|
2006–07
|
164
|
91
|
717
|
973
|
15,593
|
9,062
|
50,808
|
75,463
|
|
2007–08
|
185
|
105
|
693
|
983
|
15,833
|
12,694
|
46,727
|
75,255
|
|
2008–09
|
187
|
108
|
689
|
983
|
18,007
|
14,627
|
46,265
|
78,899
|
|
2009–10
|
183
|
133
|
682
|
998
|
23,837
|
19,538
|
49,383
|
92,759
|
|
2010–11
|
190
|
127
|
753
|
1,069
|
21,617
|
14,696
|
56,119
|
92,432
|
|
2011–12
|
183
|
154
|
702
|
1,039
|
20,758
|
19,803
|
57,610
|
98,170
|
|
2012–13
|
177
|
160
|
710
|
1,047
|
21,125
|
23,892
|
57,498
|
102,515
|
|
2013–14
|
177
|
158
|
720
|
1,056
|
22,148
|
26,339
|
59,192
|
107,679
|
|
2014–15
|
191
|
135
|
726
|
1,052
|
24,190
|
24,934
|
65,874
|
114,998
|
|
2015–16
|
206
|
121
|
713
|
1,040
|
27,319
|
21,156
|
68,222
|
116,697
|
Source: Australian
Industry ABS 8155.
Value added per employee is also significantly higher in
Engineering, Table 4 shows it is around 30 per cent higher than for Building
and double that for Construction services. Higher value added supports higher
wages and salaries, which are assumed to reflect differences in skill levels between
industries.
Wages and salaries per employee in Engineering are twice those in the other
sub-sectors, and although in this case there were also important demand-side
factors that drove up wages and salaries on big resource projects.
Table 4. Construction Industry Ratios
|
Value added
per employee
|
Wages and
salaries per employee
|
|||||
|
Building
|
Engineering
|
Services
|
Building
|
Engineering
|
Services
|
|
|
2011–12
|
113.2
|
128.8
|
82.1
|
60.2
|
103.6
|
52.7
|
|
2012–13
|
119.3
|
144.7
|
80.4
|
63.9
|
114.6
|
52.4
|
|
2013–14
|
124.8
|
167.1
|
82.2
|
65.1
|
118.6
|
55.7
|
|
2014–15
|
126.6
|
184.2
|
90.7
|
61.3
|
125.7
|
58.1
|
|
2015–16
|
132.3
|
175.4
|
95.7
|
63.7
|
127.8
|
61.6
|
Source: Australian
Industry ABS 8155.
The value added per employee data is an important
indicator, although over a short period. As a measure of output per person
employed this is an approximation of productivity. Over the last three decades,
for the industry as a whole, there has been a small to negligible increase in
construction productivity.
In this series the three sectors have followed very different paths.
Construction services are trending up, Building less so, and Engineering value
added per person increased sharply in 2014-15 before falling equally sharply in
2015-16. However, between 2011-12 and 2015-16 value added per employee rose by
37 per cent in Engineering, but by only 17 and 16 per cent in Building and
Construction Services respectively.
Figure 7. Construction Value Added
Source: Australian Industry ABS 8155.
The role of firms and firm size
The income/qualifications effect noted above will have
supported the increase in Engineering value added per person, but the main
driver of productivity is technical progress and the amount of capital per
worker. The most important source of long-term productivity growth is
investment in new plant and equipment, buildings and structures, software and
intellectual property, all the new technology that is embodied in current
machinery and IP that replaces older versions. The heavy equipment and large
machines, involved in engineering work like civil engineering, makes this a
much more capital intensive sector than Services and Building[i].
Nevertheless, these firms will typically be larger than the great majority of
firms in the Building and Services divisions.
Another factor is technological competence. The
construction industry has many traditional building contractors and
subcontractors, mainly doing small to medium size local projects using
standardized technology, but there is also a group of major contractors,
operating in national and international markets, that are more technologically
and operationally advanced. Many mining boom projects were managed by one or
another of these international firms, Bechtel alone had the three Curtis Island
LNG projects. Further, many of the clients of these projects were very
experienced and, to an extent, intelligent clients with a good understanding of
what their project entailed. Despite the problems encountered during the boom,
such as resource shortages and remote sites, these firms appear to be good at
managing for productivity on their projects.
The number of employees for large, medium and small
firms[ii]
also followed different paths. Large firms ended up with the same number
employed in 2015-16 as in 2008-09. Overall growth in employment during the
mining boom was in the medium size firms, and this is the only category that
has seen a sustained rise in employees over the period. Employment in
Construction services is clearly driven by the level of activity in residential
building.
Figure 8. Construction Employment by Firm Size
Source Australian Industry ABS 8155.
*
There are two obvious possible futures for Australian
building and construction over the next decade. The industry could revert, and
return to something similar to the pre-boom profile, with Building and
Construction services expanding their share of output as Engineering contracts.
This is the less skilled industry with lower pay and lower productivity, and is
more labour intensive. The second version is a permanent structural change to
an industry with a larger and growing high skilled, high value added component.
It’s a more capital intensive industry doing larger projects. A more productive
industry would be sustained by infrastructure projects (transport and power for
example) and an increasing amount of high-rise building, both commercial and
residential.
[i] How much more we don’t know because capital stock data at the
division level is not available.
[ii] The size of these
firms is not defined. The last Construction
Industry Survey had medium size firms employing 6 to 20 people.
