Can Measurement Error Explain the Weakness of Productivity Growth in the Canadian Construction Industry?

According to Statistics Canada productivity estimates, the rate of growth of real output per hour in the construction industry in Canada over the 1981-2006 period was 0.53 per cent per year, one-third of the business sector average. This article examines evidence for and against the hypothesis that measurement error explains this below average productivity performance. The article finds that the use of input cost indexes to adjust nominal output to obtain real output, instead of the more appropriate use of output price indexes, for certain sub-industries of the construction sector represents the most likely source of measurement error. This procedure may result in a downward bias to labour productivity growth in the construction sector of up to 0.44 percentage points per year. It is thus likely that measurement error explains some, but not all, of the gap in labour productivity growth between the construction industry and the business sector.