Indicators of labour productivity in the Malaysian construction firms: the impact of capital intensity and moderating effect of market regulation / Farah Nazira Juhari

The construction industry plays a vital role in the economy, yet the industry has been plagued by stagnant productivity change over time. Understanding the reasons behind this slow productivity growth is crucial for the industry's sustainable firm profitability and the improvement of wages among the industry workers. Both internal and external factors can contribute to changes in labour productivity. Consequently, the objectives of the study are to identify the level of capital intensity, market regulation and labour productivity in Malaysian construction firms, to determine the impact of capital intensity on labour productivity in Malaysian construction firms and to produce model of the interaction effect of capital intensity and market regulation on labour productivity in Malaysian construction firms. This study aims to examine the influence of capital intensity and the moderating effect of market regulation on labour productivity. To achieve this aim, this study employs quantitative method using the collection of data from 55 publicly listed construction firms' financial data and Malaysia's economic data to determine the levels of capital intensity, labour productivity, and market regulation from 2009 to 2020 by using purposive sampling. For modelling, the two-stage least square (2SLS) method is employed to mitigate endogeneity in assessing the impact of capital intensity, market regulation, and their interaction on labour productivity. In this study, R-Software is being used to analyse the collected data. This study sheds light on the long-term effects of capital intensity and the moderating influence of market regulation on labour productivity. Previous research shows the average trend of declining labour productivity and increasing capital intensity uptake over the years. However, 2SLS illustrates a positive impact between capital intensity and labour productivity in Malaysian construction firms, particularly when controlling firmspecific effects and the time-variant effect of the economic environment. Also, this study reveals the interaction effect between capital intensity and market regulation indicators that include economic and capital freedom (ECF), property rights and rule of law (PRRL), foreign debt & exchange rate (FDER) and budget balance & wage in change (BBCW). The outcomes of moderating market regulations indicates that both ECF and FDER negatively affect the impact of capital intensity-labour productivity which is a one-unit increase in ECF is associated with approximately a 0.36% decrease in labour productivity, and a one-unit increase in FDER is associated with approximately a 0.30% decrease in labour productivity. This study suggests policymakers to strike a balance between capital-intensive investments and effective market regulations. This balance is essential to achieve optimal productivity outcomes. The government also must play a pivotal role in facilitating the adoption of new technologies and improving the capital intensity of construction firms. Continuous research and monitoring of these factors are essential to gain a deeper understanding of their dynamics that can enhance productivity and drive economic growth in the construction industry.