Construction slowdown tells disturbing story about US economy – 02/10/2023 – Ezra Klein

See what a strange thing: we are getting worse in civil construction. Think of the technology we have today that we didn’t have in the 1970s. The new generations of power tools, computer modeling, teleconferencing, advanced machinery, prefabricated materials and global shipping. You’d think we could build a lot more, a lot faster, for less money than in the past. But not. Or, at least, not us Americans.

During the 1950s and 1960s, productivity in the construction sector — how much more could be done with the same number of workers, machines and land — grew faster than productivity in the rest of the economy. Then, around 1970, it began to decline, even as productivity rose throughout the economy. Today, the divergence is really crazy.

In 2020, one construction worker produced less than another in 1970, at least according to official statistics. Compare that with the economy at large, where labor productivity has increased by 290% from 1950 to 2020, or with the manufacturing sector, whose productivity has increased ninefold.

In “The Strange and Awful Path of Productivity in the US Construction Sector” [O estranho e terrível caminho da produtividade no setor de construção nos EUA]Austan Goolsbee, newly appointed chairman of the Chicago Federal Reserve and former chairman of President Barack Obama’s Council of Economic Advisers, and Chad Syverson, an economist at the University of Chicago’s Booth School of Business, set out to find out if all this is just a statistical trick, and if not, what went wrong.

His work works by process of elimination. First, they look at whether there has been less capital investment in construction than in other parts of the economy. No.

Next, they examine whether we are mismeasuring construction—which would mean that, starting in the 1970s, we began to either overestimate the labor and materials used by the construction industry, or underestimate how much was produced with them, or both. .

They test this a few different ways, but the most interesting thing is to see how many houses were built per worker, adjusted for the built-in area. There, the trend looks more stable than negative, and perhaps slightly positive for single-family homes, but it is far from bringing construction productivity to a level close to the broader economy.

Reinforcing the idea that this is not a peculiarity of American records, the slowdown is international. The Organization for Economic Co-operation and Development tracked construction productivity in 29 countries from 1996 to 2019. In 40% of them productivity declined.

Syverson sent me the underlying data, and the only countries where productivity increased by more than 2 percentage points a year were Slovakia, Latvia, Estonia, and Lithuania—poorer countries that rebuilt themselves after the collapse of the Soviet Union and Soviet bloc.

So if it’s not underinvestment and it’s not a statistical illusion, what is it? Here, Goolsbee and Syverson look perplexed. The Wharton School of Management, for example, tracks building regulations in every city, and Goolsbee and Syverson tested the regulatory burden against building productivity.

There was a slight relationship, but nothing impressive. They looked at which US states had the highest and lowest rates of productivity increases. The worst performers, according to Syverson, were Alaska, Idaho, Wyoming, Delaware and Michigan. The relative stars were Georgia, North Carolina, South Carolina, Virginia and Colorado. This doesn’t lend itself to a clear history of Republican states and Democratic states, or urban states and rural states.

Syverson, for example, is skeptical that there is a single answer. “I don’t know how you can go 50 years of decline without having a lot of problems,” he said. “Everyone has their favorite theory. But everyone has a different preference.”

But Goolsbee and Syverson are economists. Perhaps the cause is obvious to industry experts. I called Ed Zarenski, who has worked in construction, primarily as an estimator, for over 40 years and now runs the market analysis firm Construction Analytics. Zarenski, who closely monitors construction costs and turnover. He agrees that there has been a slowdown. And he agrees that there is no single cause for this. But when he thinks back to what the construction industry was like when he started his career and what it is like now, the examples abound.

“When I started in the 1970s, you would estimate for a project,” he told me. “You pitched in, made your bid, and if you won, construction started. When I left in 2014, you got three quotes for each job before you even bid. That becomes part of the cost of the job.”

Or look at the construction site, he said. “Safety features on construction sites when I started in the industry weren’t even noticeable. Safety on a construction site today is incredibly different. You don’t walk over a beam, you go around a marked path so you stay safe and don’t fall off the side of the building When I retired, one thing that happened every day, on every job site, was a mandatory 15 minutes of gymnastics before starting the workday. This is totally unproductive, but it has led to fewer workplace injuries during the day. “

And behind all this there is paperwork, paperwork and more paperwork. “The work we do today requires hundreds more people in the office to track and complete,” he told me. “The level of reports you have to send to the government, to insurers, to the landlord to show that you’re meeting all the requirements on the jobsite, all of that has gone up. them increased.”

Zarenski’s argument is not that this is a bad thing. If 15 minutes of exercise a day can help prevent a lifetime of back problems, it’s worth it. The problem is that there is more work at all levels of the process, from the analyzes carried out in the back office to the rules followed in the works.

How can we increase construction productivity again? I have no idea. Construction must become safer, more respectful of community concerns, and more environmentally sustainable as countries become wealthier and less desperate for growth.

But it’s also true that many of the problems facing the United States — from decarbonization to affordable housing — would be much easier to solve if we were getting better at construction instead of getting worse.