Why EU construc­tion outperforms US

While the construction industry has been experiencing declining labour productivity across the globe, European contractors continue to outperform their American counterparts. Both regions have seen a drop in construction productivity since the early 2000s, but the difference in impact is striking. What explains this divergence? And more importantly, what can be done to keep productivity from slipping further?

Declining productivity drives up costs and staff shortages

Unlike the manufacturing sector, where efficiency gains have driven prices down, the construction sector has seen the opposite trend. In the US, construction prices have tripled since 2000, while in the EU they have increased by almost 250%. This makes new construction more expensive, putting pressure on both consumer and corporate investments.

Lower productivity also contributes to growing labour shortages. As of March 2024, more than 30% of EU contractors reported that they couldn’t complete all projects due to a lack of personnel. A 20% productivity increase could help the EU avoid the need for an additional 2.5 million construction workers.

Why is the construction sector lagging behind?

Construction is much harder to standardise than manufacturing. Each project is tied to a specific location, subject to different site conditions and regional regulations. This makes automation and prefabrication more difficult to scale. On top of that, many contractors build according to external designs, increasing the need for customisation and improvisation. And with most construction firms being small and locally oriented, innovation tends to spread slowly.

The US invests less and digitises more slowly

Still, there is a clear gap between Europe and the US. Construction output in the US has dropped by over 8% since 2000, while the EU experienced a milder decline. Lower output generally means less room to invest in new technology or processes. EU contractors invest around 11% of their added value in capital goods—nearly double that of their US peers.

Digitisation has also progressed more rapidly in Europe. The value of software per employee has nearly doubled in several EU countries since 2000, compared to a 44% increase in the US. Better information flows, fewer errors, and faster processes give EU firms an edge in project execution.

What can the sector do?

Improving productivity is key to managing rising costs and labour shortages. Digitalisation is a relatively accessible way to increase efficiency—think of using a single digital version of the design (a single source of truth), which ensures all stakeholders are working with the most up-to-date information. This reduces mistakes and improves project coordination.

Industrialisation—through robotics, machinery or prefabrication—can also contribute, although it often requires significant upfront investment. Timber construction is one promising example: it’s lightweight, sustainable and highly suited to prefabrication, enabling faster and more precise on-site assembly.

Time for a strategic productivity approach

The European construction sector shows that targeted investments can pay off. But even in Europe, pressure on the sector is increasing. Without further improvements in efficiency, maintaining affordability, speed and sustainability will become more difficult.

The full article offers deeper insights into the productivity gap between the EU and the US—and outlines concrete steps that construction companies can take to stay competitive.

ING Corporate Sector Coverage | United States