The productivity of construction industry

Summary

The productivity of construction industry in Finland has remained almost constant in the long run. On this specific point, the construction industry is also often compared with the manufacturing, where productivity has increased vigorously. it is often said that industries in which productivity has stagnated have in some way failed. This is not necessarily true. Some rather natural factors explain non­existent productivity gains in the construction industry. From this it does not, however, follow that there is no room to increase productivity in the construction industry or that it is vain to seek such a development.

In various industries the deployment of more efficient machines and equipment makes it possible to raise productivity. With this the capital intensity of the produc­tion would also rise. The labour intensity of the construction industry in Finland and elsewhere is a clear indication that productivity has not been managed to raise in the manner described above. All in all, the uniqueness and the complexity of building projects and the big role of silent knowledge in the construction industry constraint the possibilities to increase efficiency. This also keeps the production process very labour intensive. By silent knowledge one means knowledge that is difficult to transfer to another person by means of writing it down or verbalizing it. The uniqueness in this context does not only refer to such super unique projects as Music House, West Metro or library building Oodi. Even quite regular apartment houses differ from each other with respect to their connection to water pipes, the sewer system and the electricity network. Same types of houses are neither produced a lot. So, repetitions in the production of such houses can by no means be compared with repetitions in the manufacturing of electronics or cars, for example. Because houses are quite large items, building in the same site does not last long time, subcontractors and material providers change repeatedly. This all makes the management of production difficult.

In the empirical part of this project we analyse the factors which have impacted the productivity of the construction industry in Finland. The data covers years 1996 ­ 2016 and practically all the firms in the industry under those years. According to the results, working experience has a robust and positive effect on the productivity of construction firms. The impact of education is more ambiguous, maybe due to the deficiencies of the data. From these results one can, however, conclude that the labour and management skill levels have a great impact on the productivity. On these grounds one may recommend to invest resources in practical training which strengthens labour skills.

This study also found out that information technology investments, the use of subcontracting and the purchases of materials and the basic components of building structure supports productivity only if annual purchases or investments are large enough. So it seems that for small and medium size firms it is difficult to benefit from outsourcing. Maybe costs savings from outsourcing are based on the speciali­sation enabled by it and related utilization of economies of scale. Small and medium size firms could, however, be successful, if they can take advantage of their simple production system which relies on self­making. But for them, too, skilled labour and management is a necessary condition for efficiency.

This study discovered also that R&D­investments support productivity and that the related impact does not intensify with the size of a R&D­investment. It then pays for the public sector to support all kinds of R&D­projects in the construction industry regardless of their size.

• ISSN: 2242-6914 (Online)
• ISBN: 978-952-209-187-1 (Online)
• Publication in PDF-format