Addressing the Productivity Plateau in the Construction Industry

Over the last five decades, industries like manufacturing have experienced significant productivity gains, but the construction trades have not kept pace with this progress.

For over five decades, productivity in the construction industry has remained stagnant, a reality that many professionals in the field may find difficult to acknowledge.

A recent research brief from the Becker-Friedman Institute for Economics at the University of Chicago, The Strange and Awful Path of Productivity in the Construction Industry, highlights this issue: “Despite aggregate productivity for the U.S. economy having doubled over the past 50 years, the country’s construction sector has diverged considerably, trending downward throughout that period. And this is no slight decrease. Raw BEA data suggest that the value added per worker in the construction sector was about 40 percent lower in 2020 than in 1970.”

Among all sectors involved in the built environment—architecture, engineering, and manufacturing—construction is the only one that has seen little to no progress in productivity over the last 50 years. As The Economist pointed out, “Since 1995 the global average value-added per hour has grown at around a quarter of the rate in manufacturing… no industry has done worse.”

Why Has Construction Productivity Lagged Behind?

Unlike industries such as manufacturing or technology, construction lacks a standardized, unified approach. The sector is highly fragmented, made up of numerous small and mid-sized businesses, each with its own methods. This decentralization makes industry-wide advancements and technology adoption challenging.

However, the issue isn’t just structural—it’s also cultural. Construction is traditionally risk-averse, often resisting change. Even when new technologies and processes offer clear advantages, adoption tends to be slow.

Another key factor is the nature of construction work itself. Many tasks require human judgment and hands-on skills, making automation more difficult to implement. While some aspects—such as bricklaying or welding—are beginning to see robotic integration, much of the work still demands human expertise.

The labor shortage further complicates the issue. A significant skills gap exists due to insufficient investment in workforce training and an aging labor pool. Without enough skilled professionals, inefficiencies and delays become unavoidable, dragging down productivity.

Government regulations also play a role. Lengthy permitting processes and extensive compliance requirements can create bottlenecks, slowing down projects and inflating costs. While regulatory oversight is necessary, it often adds layers of complexity that hinder progress.

Another crucial factor is underinvestment in research and development. Compared to other industries, construction has historically allocated fewer resources to innovation, slowing the development of new tools, materials, and techniques that could drive efficiency.

Furthermore, the industry’s focus on individual projects rather than long-term technological advancements limits broad productivity gains. Short-term deadlines and budget constraints often prevent companies from making forward-thinking investments in innovation. As a recent Freakonomics Radio episode pointed out, “When productivity falls, prices often rise.”

A University of Chicago study underscores the economic impact of this decline: “Had construction labor productivity grown over the last five decades at the (relatively modest) rate of 1 percent per year, annual aggregate labor productivity growth would have been roughly 0.18 percent higher, resulting in about 10 percent higher aggregate labor productivity (and, plausibly, income per capita) today.”

Signs of Progress

Despite the slow pace of change, innovation is happening. In the pavement maintenance and construction sector, for example, the development of biobased pavement sealers has demonstrated how new materials can enhance efficiency. Initially introduced in the Midwest, these products have since gained traction on the West Coast and have been widely adopted by municipalities, corporations, and government agencies.

Beyond their environmental benefits, these sealers improve project efficiency—they can be applied quickly, work overnight, and require no specialized training. They are also stable and cost-effective to transport, which is rare in this industry. Additionally, because they are composed of soybean and botanical oils mixed with recycled Styrofoam, they can extend the lifespan of asphalt by two to three times, cutting labor and construction costs while freeing up resources for additional projects. In other words, they actively contribute to increased productivity.

The Path Forward

If the construction industry is to overcome its productivity challenges, a shift in mindset is essential. Embracing and encouraging innovation, investing in new technologies, and fostering a culture of adaptability will be key to breaking this decades-long stagnation.

Achieving lasting productivity growth will require a collaborative effort among construction firms, policymakers, technology developers, and training organizations. Most importantly, it demands a commitment to investing in new solutions rather than resisting them.

Fifty years of stagnation is long enough. The industry must evolve—now.