The ACTU Economic Bulletin is released monthly. Each edition contains a feature article, and a summary of the main economic data from the previous month. This edition takes a look at Australia’s productivity growth in recent years, including a comparison of Australia with other advanced economies. More information: http://www.actu.org.au/Publications/EconomicReports/
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ACTU Economic Bulletin - October 2013 – Page 1 After a few years of hysterical headlines, productivity seems to have fallen off the front pages. That may be because Australia’s productivity performance of late has been quite strong. This edition of the ACTU Economic Bulletin takes a look at Australia’s productivity growth in recent years, including a comparison of Australia with other advanced economies. Most of the Bulletin focuses on labour productivity, which is GDP per hour worked, but some consideration is also given to other measures. Before taking a look at the data, it’s worth recapping the ACTU’s position regarding productivity growth. We agree that true productivity growth is in the interests of workers, as it provides the basis for sustainable increases in average material living standards. By ‘true’ productivity growth, we mean growth that comes about through technical innovation and an improved and expanded capital stock, not through an increase in working hours (measured or unmeasured), which is not productivity growth at all. We have also consistently argued that industrial relations legislation is not a primary driver of productivity – instead, investment in skills and infrastructure, as well as management quality and innovation, are the key factors. Productivity growth reached a low point during Work Choices and has recovered since. We don’t claim that the poor productivity performance of the mid-2000s was caused by IR changes, nor that the subsequent improvement is due to the repeal of Work Choices. Rather, we say there are far bigger economic forces at work affecting the rate of productivity growth, like the mining boom, the investment in electricity generation capacity, and droughts. On this point, our view is shared by many economists. Those business groups and media outlets making the case that changes in IR laws explain changes in productivity growth have never accounted for the fact that the timing is all wrong. The rate of growth in both labour and multi-factor productivity slowed around the turn of the century. Work Choices didn’t
Transcript
ACTU Economic Bulletin - October 2013 – Page 1
Key points
Labour productivity growth in 2012-13 was the
strongest in a decade.
Australian workers generate an average of $US53
per hour they work, much higher than the OECD
average of $US46 per hour.
In 2012 and over the past five years, Australian
labour productivity has grown faster than
productivity in any G7 country, including the
United States. Australia’s growth has been more
than twice the OECD average.
Multifactor productivity has been stagnant,
though this has been the case for around a
decade.
Other commodity-exporting OECD countries have
also experienced falls in multifactor productivity,
suggesting that the increase in the capital stock
driven by the resources boom is the culprit.
After a few years of hysterical headlines, productivity
seems to have fallen off the front pages. That may be
because Australia’s productivity performance of late
has been quite strong. This edition of the ACTU
Economic Bulletin takes a look at Australia’s
productivity growth in recent years, including a
comparison of Australia with other advanced
economies. Most of the Bulletin focuses on labour
productivity, which is GDP per hour worked, but
some consideration is also given to other measures.
Before taking a look at the data, it’s worth recapping
the ACTU’s position regarding productivity growth.
We agree that true productivity growth is in the
interests of workers, as it provides the basis for
sustainable increases in average material living
standards. By ‘true’ productivity growth, we mean
growth that comes about through technical
innovation and an improved and expanded capital
stock, not through an increase in working hours
(measured or unmeasured), which is not productivity
growth at all. We have also consistently argued that
industrial relations legislation is not a primary driver
of productivity – instead, investment in skills and
infrastructure, as well as management quality and
innovation, are the key factors.
Productivity growth reached a low point during Work
Choices and has recovered since. We don’t claim that
the poor productivity performance of the mid-2000s
was caused by IR changes, nor that the subsequent
improvement is due to the repeal of Work Choices.
Rather, we say there are far bigger economic forces
at work affecting the rate of productivity growth, like
the mining boom, the investment in electricity
generation capacity, and droughts. On this point, our
view is shared by many economists.
Those business groups and media outlets making the
case that changes in IR laws explain changes in
productivity growth have never accounted for the
fact that the timing is all wrong. The rate of growth in
both labour and multi-factor productivity slowed
around the turn of the century. Work Choices didn’t
ACTU Economic Bulletin - October 2013 – Page 2
appear to help – the worst MFP growth was in 2008-
09, when those laws were in place, and that period
also saw the lowest two-year labour productivity
growth in a decade. Fair Work hasn’t hurt, with all
measures of productivity growth improving in recent
years. Of course, it’s theoretically possible that
growth would have been even weaker in the absence
of Work Choices, and would have been even stronger
without Fair Work. But that case has not been made.
Instead, weak productivity results have been
advanced as prima facie evidence that legislative
change is required. We’ve consistently argued that
the ‘productivity debate’ has been a shallow
sideshow, a (temporarily) convenient rationale for
the campaign against the Fair Work laws. This has
served as an unfortunate distraction from the real
productivity agenda, relating particularly to skills and
infrastructure.
We’ve also argued that although productivity growth
is a necessary part of any agenda to improve the
living standards of low- and middle-income workers,
it is not sufficient. Distribution, both between labour
and capital as well as between workers and
households, makes a difference and should not be
ignored.
Labour productivity growth in 2012-13
In 2012-13, labour productivity rose by 2.2%. This
was the fastest growth since 2001-02, and compares
to average annual growth over the decade to 2011-
12 of 1% per annum.
Figure 1, and some other charts in this Bulletin, label
the periods in which the Work Choices and Fair Work
legislation were in operation. Again, this doesn’t
amount to a claim that these pieces of legislation
caused the changes in the rate of productivity
growth. Instead, these labels are included to refute
the proposition, less often put in recent months, that
productivity has grown especially slowly during the
Fair Work Act’s operation. 2010-11 saw a fall in
labour productivity, largely due to the natural
disasters in Australia and our trading partners (Japan
and New Zealand) in early 2011 that temporarily
reduced economic output. Other than that, growth
has been strong for the past few years.
Figure 1: Labour productivity growth
Source: ABS 5204
Much the same story is apparent in the ‘market
sector’. This measure excludes industries with heavy
public sector involvement, where productivity is
more difficult to measure. Labour productivity in the
market sector rose by 2% in 2012-13, up from an
average over the previous decade of 1.5% per year.
The figures can be a little volatile, as is apparent in
Figure 1. Figure 2 looks at the market sector growth
rate over two-year periods, which smooths out this
volatility. Labour productivity in the market sector
rose by 5.5% in the past two financial years, the
fastest in a decade. While labour productivity growth
hasn’t reached the highs of the mid-to-late 1990s, it
has clearly picked up from the lows of the mid-2000s.
Work Choices
Fair Work
Act
-1%
0%
1%
2%
3%
4%
5%
1993 1998 2003 2008 2013
Per cent
ACTU Economic Bulletin - October 2013 – Page 3
Figure 2: Labour productivity growth in the market sector in rolling 2-year periods
Source: Calculations based on ABS 5204.
One of the reasons for the pick-up in growth appears
to be improved labour productivity in the mining and
utilities industries.
Figure 3: Labour productivity growth in selected industries
Source: ABS 5204. ‘All industries’ refers to gross value added in all industries. ‘Past 10 years’ is the compound annual growth rate between 2002-03 and 2012-13.
Over the past 10 years, productivity in mining has
fallen substantially, with output per hour worked in
mining barely half of what it was in 2003. Part of this
is due to a temporary effect of the boom – higher
commodity prices leads to the construction of new
resource projects. These projects use a lot of labour
while they’re under construction, but take a few
years before they start generating output. With
projects coming on-stream, this effect may be
starting to reverse. In the utilities industry,
investment in power generation capacity and
projects such as desalination plants uses up economic
inputs without generating a commensurate rise in
output, at least for a little while. Both industries
experienced strong productivity growth in 2012-13.
Note that part of the fall in productivity in mining is a
temporary effect, as discussed. But part of it is longer
lasting. While commodity prices are high, firms have
an incentive to mine deeper, lower quality, and/or
harder to extract resources, which require a greater
amount of labour and capital per unit extracted. This
tends to lower productivity in the industry relative to
its level in periods with lower commodity prices. This
effect, combined with the temporary fall while
projects are being constructed, accounts for a large
portion of the decline in productivity growth in the
2000s.1
The fastest productivity growth in the year was in the
financial and insurance services industry, followed by
administrative and support services. Productivity
grew in 11 industries, shrank in 8, and was
unchanged in arts and recreation services.
1 Views differ about the extent of the contribution of these
factors to the 2000s slowdown, but there appears to be agreement that they are important. See, for example, ACTU 2011; Eslake 2011; Dolman 2009; PC 2010; D’Arcy and Gustafsson 2012; Richardson and Denniss 2011.
