No Case to Answer: Productivity Performance of the Australian Construction Industry

Article excerpt

1. Introduction

This article examines the productivity performance of the Australian construction industry and identifies some of the key factors affecting productivity growth. It also evaluates the recent Productivity Commission (1999) report on the construction industry. The article challenges the central thesis of the Productivity Commission that a high level of unionisation within the industry is adverse for productivity growth. Moreover, the recommendations of the Commission directed at increasing productivity within the industry are likely to exacerbate those structural features of the construction industry which impose a constraint on productivity growth within the industry. Some of these recommendations include, for example, an increase in labour flexibility through increased use of labour hire firms and the setting of different remuneration and hiring practices by individual sub-contractors on large construction sites. The primary data sources are national and international official economic data on the industry and case studies undertaken by the authors of major city building projects. The study finds that the Australian construction industry is within the top three OECD countries in terms of construction output per person employed. The survey of major city construction projects included project managers, sub-contractors and union delegates.

The article is structured as follows. Section Two provides a brief analysis of the role and significance of the construction industry in the economy. Section Three critically considers the terms of reference of the Productivity Commission Inquiry into the Australian construction industry and the methodology employed. Section Four outlines the numerous problems of devising productivity measures for the industry and summarises international productivity comparisons of the construction industry. This section also briefly summarises the findings of the case studies of industry participants engaged on large capital city building projects. The main findings are that for industry participants the primary determinants of on-site productivity are issues such as skilled project management; a co-operative on-site environment; training and high OH&S standards. The principal conclusion of this study are that the Productivity Commission has ignored the substantial evidence regarding the excellent comparative productivity performance of the local construction industry; the terms of reference of the Inquiry in focussing solely on work arrangements within large capital city building projects are unnecessarily restrictive and exclude a consideration of many influences on productivity and the recommendations of the Commission are likely to constrain long-term productivity growth within the industry.

2. Economic Significance of the Construction Industry

The building and construction industry currently accounts for around 6.3 per cent of total Australian GDP and is the fifth largest of the seventeen ANZSIC industry divisions in terms of its share of GDP. (The other industries in descending order are Manufacturing, Wholesale, Retail, and Property and Business Services). The industry's long-run rate of growth, at just under 2 per cent annually, has been marginally less than growth in the total economy, with the effect that its share of GDP has gradually declined over the last twenty years. It is comparatively labour intensive, with its share of total employment generally exceeding its contribution to total GDP by around 0.5-1.0 per cent. Construction is the sixth largest employer nationally, directly employing around 640,000 persons in 1998-99. This figure includes both employees and self-employed. (The other industries in descending order are Retail, Manufacturing, Property and Business Services, Health and Community Services and Education).

Aside from its importance in terms of its contribution to employment and GDP, the building and construction industry is significant as it is a key element in investment and, therefore, the future prosperity of the nation. …