The literature gives two explanations for contractors' reluctance to adopt labor-based methods. First, contractors believe the cost of learning this new technology is high. Programs designed to promote labor-based methods have always included subsidized training to address this problem. This study argues that focusing on training often diverts attention away from more substantive problems inherent in adopting labor-based methods. Second, the more fundamental, some have argued that the cost of managing large labor forces, which is difficult to quantify in unit-cost comparisons, makes labor-based methods less competitive than equipment-based methods. This study shows that although labor-based methods can be financially more attractive to Ghanaian contractors, market-structure conditions thwart their use. Unit-rate cost comparisons of labor-based and equipment-based methods, therefore, cannot predict firm behavior. In particular, there is a very important distinction between small and large contractors. Labor-based methods are more attractive to small firms than to large firms. Small firms, because they are small, can supervise their sites themselves and thus find it easier to develop strategies to increase worker productivity and control truancy. Moreover, unlike large firms, small firms who wish to use equipment-based methods face high variable costs: they either own older, less-efficient equipment-with high maintenance costs-or must rent equipment at a high cost. Large firms, in contrast, find labor-based methods much less attractive. Large firms have high monitoring costs because of their size and because they often undertake many projects simultaneously.
SSATP Working Paper No.24
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