The Economics of the Construction Industry

Gerald Finkel

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317457275
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The American construction industry, reponsible for nearly 4% of the nation's Gross Domestic Product, directly employs over five million people and provides millions of additional support jobs in related fields. This book provides an introductory overview of the economic aspects of the industry, including the historical development of building activity from earliest times to modern day market-based construction, including the work of individual artisans to complex construction unions. The book explores current trends in labor force participation; the measurement of industry performance; the determinants of investment; government involvement; competition; wage determination; training; and worker safety.

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CHAPTER 1

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The Historical Development of the Construction Market

There are two underlying themes that permeate the modern building industry. The first is that construction per se is technologically rooted in man’s historical appropriation of nature. The second is that the present-day notion of construction as an economic sector is an outgrowth of the development of market-based construction. Both of these themes are inexorably woven into the everyday pace and rhythm of construction.

In the first respect, builders and craftspersons still confront the age-old problems posed in the aboriginal search for dwellings. Issues of ventilation, illumination, and structural support, which challenged their historical predecessors, are confronted daily by engineers, architects, and tradespersons. Cave dwellers would no more be apt to build a wintry fire in a low-domed cliff aperture than would a twentieth-century architect design a sealed office structure without air-conditioning.

The physical history of construction is one of materials and machines. The choice of materials has always been a function of use, durability, and availability. Brick and stone structures dominated colonial New England while timber homes were the western standards. The ice structures of the frozen northlands and the adobe homes of the sun-dried Southwest highlight the obvious in technique and medium.

Yet all of these materials have inherent structural limitations and therefore limited use value. Changes in technologies and materials were greatly affected by the activity in related markets (e.g., real estate and transportation). Thus the decisions on employment of scarce resources were shaped as much by technical considerations as by economic concerns.

There are several building staples that can be used to illustrate the preceding arguments. The weekend handyperson’s all-purpose medium—wood—provides a good starting point. Timber, its natural fibers plentiful and accessible in so much of the world, has played a pivotal role in the development of the construction industry. Strong and durable, light and readily cut to size, wood has always been the preeminent builder’s material.

As special handlers and installers of wood, carpenters trace their roots to biblical times. Wood in the form of timber, planks, and boards worked well in all phases of the building process. Ladders, supports, scaffolds, and decking could quickly be constructed from wood. For centuries, finished products of wood kept sailors afloat and landlubbers warm as wood became the defining element of construction activity.

The tensile and lateral strengths of wood are powerful indeed. Cross beams, roof beams, and header beams of lengths up to forty feet provided dependable support to buildings as high as six stories. Multistory dwellings, barns, and farmhouses dotted the eighteenth-century American landscape as testimony to the practical advantages of wooden construction.

Yet for all its sturdiness, wood also brings with it a number of limitations. Low-rise and single-family dwellings were and still are adequately supported with wood framing. It is around the seventh-story level that such structures falter. Wooden beams and joints are not capable of withstanding the rigorous stress of high-rise building. Wind, settling shifts, and overall weight create engineering disasters. The shoring up of columns and joists would create an unusually complex shelter if wood were used in a high-rise building.

Even if weight considerations were eliminated, timber costs in terms of time and material would be prohibitive. While the longevity of wood is legendary (ancient Mediterranean piers have been found intact), its exposure to the elements presents a serious maintenance issue. After all, the Colosseum in Rome and the temples of Athens endure precisely because of their nonwooden construction.

In the twentieth century a series of issues came together to inhibit the attraction to wood. Flammability is clearly a concern in densely populated urban areas, and building codes severely reduced wood’s applications. Deforestation is a second issue, and has as much to do with the rising cost of scarce timber as it does with environmental shock over shrinking timberlands. The vociferous demand for raw building wood as well as for finished wooden products helped to trigger market mechanisms such as product substitution and labor-saving techniques.

A modern alternative to wood has clearly been steel. Developed out of the iron ore industry, steel is a metallic alloy compound of carbon and iron. The relatively low carbon content in steel distinguishes it from its forerunner—cast iron. Steel was found to be more malleable and lighter than cast iron, making it an almost instant “hit” among builders. It was not long after the introduction of steel to the building industry that nineteenth-century steel structures were surpassing the heights of such skyscraping marvels as the Cast Iron Building in Manhattan.

By the turn of the twentieth century, steel and commercial construction were literally welded together for the future. The steel I beam could provide enormous transverse support resulting in a reduced number of vertical supports. With office market rents based on square footage, fewer supports meant greater amounts of rentable space. The incremental costs of steel construction could readily be justified by the added revenues steel would bring. The durability, strength, and fire resistance of the metal easily made up the cost differential in installation and production. Iron ore gave rise to the ironworker, and an essentially highly skilled modern building trade was born. Riveters, erectors, and welders became permanent fixtures on the construction scene as they plied their trade on structural skeletons with seeming abandon.

In addition, steel was readily integrated into the core construction of any project. Thin steel girders were capable of supporting wide expanses of concrete flooring and the form work that went with these poured decks. Banks of elevators and the vertical steel rails upon which they ran were incorporated into the steel framework, with iron and concrete stairwells being easily connected to the internal superstructure.

While the technical factors favoring steel seem commonsensical, the cost savings were far less obvious. A convergence of diverse market activities formed a late-nineteenth-century nexus that resulted in a classic matching of supply with demand. For the barons of steel, this marked the beginnings of an unmistakable boom. For the in-house fabricators of steel products, it represented additional pressure on the unions and the workers’ control of the production process. For on-site constructors, it signaled the commencement of a tidal wave of construction that has yet to subside.

The symbiotic relationship of construction with related markets is not a new story. Balloon-frame construction of single-family homes rapidly replaced tongue-and-groove framing of American homes in the mid-nineteenth century (Fitchen 1986, p. 67). Rising demand for housing in the western states was coupled with a relative lack of skilled carpentry labor. Yet, as Boorstin has noted, “such a breakthrough in home building could never have taken place without revolutionary advances in the manufacturing of nails” (Boorstin 1965, p. 150).^*

In a similar vein, steel construction was reliant upon a manufacturing advancement that appeared in the form of the Bessemer (or Kelly) method. The cheapened cost of quality steel was a boon to the railroads, construction firms, and manufacturers of the time.

As a practical marketing strategy for steel producers, the advent of the high-rise building was a godsend. The consolidation and expansion of enterprise following the end of Civil War hostilities led to a wave of immigration on the coasts. The flow of immigrants to port cities such as New York City and Boston put a strain on available land resources. In short, the solution to the resulting rise in land values was to cease building out and begin building up. Such a solution necessitated a new structural form.

Steel played still another role in the development of America’s late-nineteenth-century economic expansion. The rising populations of the eastern cities required an efficient transportation network that could move raw materials and finished products. It was this growing use of steel in the cities and on the rails that helped to create the framework for a national economy.

The famous meeting of the Union Pacific’s and the Central Pacific’s railroad construction companies at Promontory Point, Utah, in 1869 was a watershed for iron rail construction. By 1900 there were almost 200,000 miles of railroads in the United States. With the crisscrossing of the continent in iron and steel rails, the market for steel had lived up to expectations. As markets mature, new outlets are typically sought by producers. It was the building industry that offered the perfect flow in demand. The investments of the steel magnates were not justified for a market confined to rail systems. It was the involvement in a much broader scope of economic activity that was the real prize (Chandler 1965, p. 77).

This same type of market integration must also be considered when reviewing the third key building material. Concrete is produced by mixing granular deposits with a cementious binder. The binder is usually in a powdered form containing a mix of elements such as silica and lime. Its natural appearance in many parts of the world helped give concrete a grand and glorious role in the history of construction. From Roman aqueducts to cathedral towers, concrete has been molded into structures of use and shelters of sanctuary. Yet the historic role of concrete changed rapidly with the fast pace of modern economic development.

Since antiquity, concrete had been used to provide durable and maintenance-free coverings for a variety of structures. It was shaped by bricks or stone, which became part of the permanent work (e.g., the aqueducts), or spread over on top of various fills to form a platform, as in the Mediterranean docks. Despite its widespread applications and relative availability on a large scale, there was little generalized commercial use of concrete. For one thing, concrete lacked tensile strength to complement its ability to cover large areas. For another, the dependence on natural cementious binders limited supply and confined the locations for production. Concrete’s historic importance as a building material belied the fact that concrete work remained archaic.

Once again it is the latter part of the twentieth century that is the backdrop for the development of a modern concrete industry. The significant breakthroughs were the invention of Portland cement and the innovation of reinforced concrete. Portland cement became the artificial binder that held together the granular particles, thus overcoming the natural limitations imposed by cement deposits. Reinforced concrete was created through the combination of concrete and steel. The placement of steel rods into wet concrete helped to solve the problem of tensile strength. The hardening of cement around these invisible supports produced a powerful finished product that could sustain massive weight over wide expanses.

With a concrete industry in place, the trucking of cement became one of the integral operations in the construction industry. Concrete laborers, cement finishers, and drivers would be sought for skilled and semiskilled positions that provided tens of thousands of jobs for immigrants and native Americans alike. It did not take long before the time necessary for the pouring and hardening of the deck set the pace for any new project. By 1917 concrete technology had reached the point where Anheuser-Busch could construct the world’s largest concrete building in St. Louis. At eight stories and 21.3 million cubic feet, it stood as a solid monument to the growth of construction design.

As with the other cases cited, concrete design had built-in limitations. The tensile strength of poured reinforced concrete and the weight of the finished pour required large amounts of columnar support. Unlike steel frames and decking, which could create large open commercial spaces, concrete decking needed more closely arranged under-supports. Thus the relative costs of concrete as opposed to steel made concrete more suitable for high-rise housing and low-rise commercial projects.

Because apartments are rented or sold by the number of rooms in the unit rather than by square-foot area, columns that could be integrated into wall or closet designs were not a serious drawback to prospective tenants. The concrete system of flying (reusable) plywood forms and four-by-four-inch wooden posts provided an inexpensive means of keeping floor pours on cycles as short as two days, with only one day to build forms and only one to pour.

Engineering and design advances were able to compensate for the weight issues, and by the mid-twentieth century concrete structures began to rise to extraordinary heights. Through the use of setbacks and relocation of core components such as elevators and mechanical rooms, architects and engineers found the structural strength to propel these buildings skyward. For example, in 1967 construction workers were nearing completion of the Lakepoint Tower in Chicago, a seventy-story reinforced concrete building.

Regardless of how innovative these architects and engineers may have been with their newly created building materials, high-rise construction still could not have proceeded without several additional technical breakthroughs. Practically speaking, electric power and indoor plumbing needed further advancements before skyscrapers could be used efficiently. More to the point, there could be no such skyward movements without the invention of the elevator.

Of the dazzling array of nineteenth-century construction break-throughs, the electric-powered elevator symbolizes the confluence of industry, economy, and technology. Mechanical lifting was not new to builders or architects. Pulley systems powered by humans or animals were in existence throughout the ages. But this type of lifting was designed exclusively for materials, for the usual ropes of hemp proved far too unreliable for passengers.

The turn-of-the-nineteenth-century application of steam power and the creation of a steam-powered hydraulic lift were the first real shifts in lift construction in centuries. The use of a piston operated by a pressurized fluid improved lifting capability, but it was Elisha Otis’s safety device that solved the problem of reliability. The Otis braking mechanism, which was attached to the steel rails, provided the security to overcome the inherent dangers of worn-out rope systems.

By 1857 the first steam-powered hydraulic people lift was operating in the Haughworth department store in New York City, moving people up and down through five stories. In the mid-1880s electric power replaced steam and the first commercial application of an electric-powered non-hydraulic lift appeared in the Demarest Building in New York City.

Vertical transportation had become an industry unto itself. From manufacture to installation, elevators were now big business. In the same manner that electricity gave rise to the electrician and steel to the steelworker, the elevator produced the elevator constructor. The technologies of steel, hydraulics, and electricity were being combined at the job site through a myriad of skilled workers and specialty contractors.

Development was urgent and moved ahead rapidly. High-rise construction was pointless without vertical lifts. As building heights spiraled upward, elevator technology raced alongside. The 102-story Empire State Building was constructed with elevators capable of moving people skyward at the rate of 1,200 feet per minute, while in less than 100 years from the first commercial use, elevators in the 110-story World Trade Center were climbing at a rate of 1,800 feet per minute, or nearly three floors per second.

The histories of other engineering and architectural challenges are not dissimilar to those of structural support and human mobility. Electricity, electric lights, ventilation, and environmental controls had periods of discovery, experimentation, and commercialization. The common economic path that connected these various aspects of construction is found in the basic principles of market economics. Low-cost production, product availability, and quality control are important elements to the satisfaction of market demand. The unfolding of the construction industry has been to a great extent the response to endogenous economic factors. Thus once the machinery has been set in place, the same rules that apply to overall market enterprise begin to take hold in a particular market. Competition, profitability, wage labor, and productivity are historically developed categories that need to be more fully understood in terms of the development of the construction industry.

Yet while so many of the rules of an enterprise system are applicable, these same rules are mediated by the unique characteristics of the building industry. In particular, falsework, geographic location, and hand-tool operations have helped to shape the direction and pace of the industry.

Falsework refers to the amount of temporary construction needed to build a final structure. This can consist of scaffolding, ladders, and formwork. It can be found on every job site from the Egyptian pyramids to the Battery Park City complex in New York. Not surprisingly, falsework has its own special skill requirements an...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of Tables and Figures
• Introduction
• 1. The Historical Development of the Construction Market
• 2. Economic Theory and the Construction Industry
• 3. An Industry Overview
• 4. Trends and Directions in the Construction Industry
• 5. Construction Statistics
• 6. Determinants of Construction Investment
• 7. The Role of Government
• 8. Productivity
• 9. Case Studies and the Union/Nonunion Productivity Question
• 10. Competition and Workplace Control
• 11. The Determination of Wages
• 12. Organized Labor and the Building Trades
• 13. Construction Industry Training
• 14. Safety Concerns
• 15. Conclusions
• Bibliography
• Index