Is the Construction Industry Facing a Productivity Challenge?

Building and construction magnate Daniel Grollo recently stated that the construction sector could be completely 'shut down' by the rising Australian dollar and large wage hikes.

In an interview with The Australian newspaper, the businessman said Australia had to take measures to boost productivity in line with the rising dollar and high wages. He stated that unless this happened, foreign investors were likely to look elsewhere for investment opportunities.

Mr Grollo pointed out that workers were being paid $60 an hour, with increases to $80 per hour being locked in by enterprise bargaining agreements, and noted that a similar wage set in Texas was only $20. The solution was to boost productivity, he added.

Various industry leaders and commentators have spoken out about productivity in the construction industry. In 2011, John Lloyd, the former head of Australian Building and Construction Commission, suggested that the Fair Work laws were holding back productivity reforms in the sector.

Mr Lloyd stated that the problem was the complexity and centralisation of the Fair Work system, which emphasised collective rather than individual bargaining. More individual agreement should be introduced that allow employers and employees to engage with each other directly, which would allow employers to better encourage and reward performance, and in turn enhance productivity.

However, recent figures show that productivity gains are in fact being realised in the construction sector. The latest ABS (national accounts and labour force) data shows that the productivity in the construction sector was up, with gross value added per hour rising by 7 per cent.

A recent PricewaterhouseCoopers report shows that annual average productivity growth levels across the Australian economy average 0.6 per cent in the December quarter and 1.1 per cent across the last year (compared with 2010's 0.1 per cent growth rate). The construction sector saw a productivity improvement of almost 10 per cent in the December quarter in WA alone.

Corporate leaders and decision makers in the public sector have also expressed optimism. Telstra's Productivity Indicator report, which is based on interviews with over 700 Australian leaders, suggests that optimism about productivity is relatively high.

The report found that improving productivity is a top priority for 80 per cent and 66 per cent of Australia's private sector and government organisations. The report found that the construction industry was among those sectors that expected to see significant productivity increases in the year ahead.

There is also positive news in the government's Skills for All Australians reforms which will provide subsidised training places and interest free loans to qualifying courses, including those in the building and construction sector. Adequate training and continuing professional development, such as NSW's builder CPD system, may also support a drive toward boosting productivity in the sector.