US labor productivity in construction falls 30% from 1970 to 2024, while aggregate US labor productivity more than doubles over the same period, widening a long-running gap between construction and the wider economy. Since 1965, construction labor productivity falls by an average 0.6% per year, while economy-wide productivity grows about 1.6% per year, based on analysis by Goldman Sachs Global Investment Research.
The analysis links part of the gap to limited innovation in construction equipment and processes after a period of faster adoption in the 1950s and 1960s. The share of industrial machines in total construction production costs rises from 4% in 1948 to 12% in 1968, then slips to 10% in the 1970s and stays near that level, while pre-fabrication’s share of new residential housing units falls from about one-third at its peak in 1960–1970 to 5%.
The report estimates that a 1% increase in industry-level innovation intensity increases annual productivity growth by about 0.2 percentage points, and it estimates technological changes have boosted annual construction productivity growth by about 0.8 percentage points since 1965, below the 1.0–1.3 percentage point boost it estimates for other industries. It also finds construction receives limited spillover from patent-heavy upstream sectors because many large technology advances occur in industries with weaker supply-chain links to construction.
The analysis also attributes weaker productivity to tighter housing and land-use regulation. In a cross-country framework, a 1% increase in country-level regulation intensity lowers annual construction productivity growth by 0.6 percentage points on average, and by 0.9 percentage points after controlling for factors including investment intensity and labor quality, and it estimates that regulation tightening in the US since the 1960s reduces annual construction productivity growth by 0.7 percentage points.
Within US state-level results, the report finds approval delays impose the largest drag on construction productivity growth, and it also cites rules restricting building size and height, state political involvement, local approval requirements, and impact fees as channels that raise barriers to entry for developers and reduce local competition.
The report also points to measurement issues that can bias real construction output and productivity lower. It cites research estimating that failure to capture housing quality improvements creates a 0.5 percentage point annual drag on US construction productivity growth since 1990, and that using a residential housing price index to deflate nonresidential structures adds a further 0.2 percentage point drag.
Adjusting for those measurement issues, the report states that average annual labor productivity growth in US construction from 1990 to 2024 would be -0.3% rather than -1.0%, though still below the report’s stated 1.7% economy-wide productivity growth rate over that period.