Chapter 5: Minor Blemishes: Unions, Workers, and Government

The productivity of the construction industry rests on the productivity of its laborers as well as on its management. The role of labor unions in the construction industry's woes, and its few successes, is poorly understood. Without a doubt, unions have improved the wages, working conditions, and lives of millions of construction workers. By providing training and good wages they probably also increased worker productivity somewhat. But unions have also at times limited innovation in construction.

In the construction industry the interest of the employees (workers) are more closely aligned with their employers (contractors) than with owners (buyers). In many industries, employers are huge, so they can overpower or overawe workers. The tables are turned in construction. Labor unions have a long tradition of strength in the building trades because they often outsize and outwit employers, which traditionally are small firms with little expertise or training in labor matters. Historically, this created the impression that union wages were more a function of negotiating skills than productivity.

Government rules and regulations: Regulations: Big Headaches in Small Packages

Government regulations at the local, state, and federal levels have historically impeded change in the construction industry and continue to do so to this day. In other industries with big powerful firms, economically inefficient government restrictions have been swept aside by intensive lobbying efforts. Not so in construction, where small firm size leads to a free rider problem that makes it difficult for the industry, big as it is in the aggregate, to apply sufficient reform pressure in Washington, or even in state capitals.

While government regulation of construction is generally accepted as necessary for the public good, it has often stymied innovation by reinforcing what experts call "the industry's conservative inclination." Government need not champion cutting-edge innovation, but it should not stand in the way either.

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