Thursday, January 04, 2007

Productivity and firm size in construction

Why would Canada's construction sector be more productive than the U.S. sector despite having smaller establishment sizes (ie. fewer employees in each establishment)?

If it’s the case that American construction firms, for whatever reason, have a greater ability/willingness to take advantage of economies of scale (an explanation for their larger establishment sizes), one might expect the U.S. construction sector to be more productive than Canada’s. Empirical evidence suggests otherwise. Canada’s construction sector, despite its smaller establishment sizes, is more productive, says several studies. It also has slightly more capital intensity, but this could mean a few things (ie. low economies of scale; high capital costs).
I have some ideas but I'll sit on this some more and come back to it in my next post.

Source of graphs: Don Drummond, TD economist (2005).


dachisb said...

I would wager that low cost labour (read mexican migrants) drives most of this difference.

true dough said...

I think you're right that cheap labour accounts for a portion of the difference. Another thing I was thinking about is the propensity to unionize. Our labour force (although I don't know about the construction sector) is far more unionized than the U.S. labour force. I took a bigger stab at this in my last post.

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