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Recent Trends in ProductivityProductivity is the key to improving national income and prosperity. Essentially, productivity is the result of an economy increasing its economic output at a greater rate than its inputs. The Australian Bureau of Statistics (ABS) produces three measures of productivity: labour productivity, multi-factor productivity (MFP) and capital productivity. Of the three measures, MFP provides a more rounded picture, as it takes into account the interactions between capital and labour. However, labour force productivity is the easiest to calculate and explain and thus is most often quoted. Due to the fluctuations of the business cycle and measurement issues, the ABS recommends interpreting the data on a cyclical basis. This is illustrated in the following chart, which compares actual growth in productivity with the long-run annual average in the market sector. Growth in productivity
Source: Australian National Accounts Income, Expenditure and Product, ABS cat. no. 5206.0 The following table presents data on the productivity cycles identified by the ABS. From the table it can be seen that productivity growth was at its lowest in the period 1984–85 to 1988–89 and peaked in the period 1993–94 to 1998–99. Since the end of the 1990s, productivity has fallen to below the long run average. Productivity in the market sector (a)
(a) Hours worked basis The late 1990s peak was the result of several factors attributed to the economic reforms of the 1980s and 1990s. Increased openness to the global economy, the adoption and innovative use of information and communications technology (ICT), and increased research and development (R&D) all contributed to lift productivity above its long-run average. Since 2000, productivity has slowed again. Several factors are behind this trend. The period 1998–99 to 2003–04 was characterised by a number of short-term economic shocks. A drought, the introduction of the goods–and-services tax, the Sydney Olympics, and the Year 2000 bug caused ‘boom and bust’ cycles in the agriculture, construction and communications industries. Also, falling output from Australian oil wells, which have passed their productive peak, acted as a drag on aggregate output and productivity in the mining industry. Since the end of the last cycle, in 2003–04, Australia has enjoyed a period of high employment growth, but growth in real output has not been as strong. This has affected the rate of productivity growth. The commodities boom appears to have contributed to slowing productivity growth. Rising commodities prices have resulted in a surge in investment and employment in the mining sector. However, output has not increased at the same rate. This is partly due to the fall in oil production, time lags associated with miners employing more resources, and an actual increase in production. Research shows that, in the past, it has taken about five years for output to catch up with inputs during a commodities boom. Finally, there is the continuing drought. In real terms, the gross domestic product (GDP) of the farm sector fell 26.3 per cent in June 2007 when compared with June 2006. The impact of this on GDP can be seen by comparing non-farm GDP with GDP. Non-farm GDP grew by 5.2 per cent and GDP grew by 3.7 per cent. In summary, Australia experienced above average productivity growth in the 1990s. The higher growth has been attributed to the economic reforms of the preceding years. In more recent times, the rate of growth has slowed, which analysts believe is related to a series of unusual events that have affected the business cycles of several key industries. Documentation |
