THE ELASTICITY OF CAPITAL-LABOUR SUBSTITUTION IN JAPANESE CONSTRUCTION

Abstract

The key to improving construction productivity lies in the ability to substitute capital for labour. The constant elasticity of substitution (CES) production function was used to estimate the elasticity of capital-labour substitution (ct) of the Japanese construction industry from 1983 to 1996. The null hypothesis of unitary elasticity could not be rejected, indicating firms can be encouraged to mechanise through policies that alter the relative factor input prices. The reasons postulated include an inter-play of factors arising from the institutional set-up, policies regarding technological research and development, access to credit, building codes, unionisation, labour practices, and labour management approach. The result is consistent with earlier findings by Cassimatis (1969) and Tan (1996) of unitary elasticity in the American and Singaporean construction industry respectively. This is also similar to empirical estimations made on other industries.