Why are we (Australians) becoming unproductive?

Productivity isn’t everything, but in the long run it’s nearly everything

Nobel Prize-winning economist Paul Krugman.

The subject of productivity began to attract my attention a little while ago after reading concerns by a number of leaders on the recent productivity of Australia (or lack of it).

Because I am also extremely interested in technology (information technology that is), I became even more intrigue in Australian productivity since IT has claimed for a while to be an enabler of productivity.

So what are the facts?

Firstly, within the OECD we used to rank 12th in 2007. By 2010 (last data available) we rank 15th and by all accounts dropping even further!.

The following are charts sourced and produced from the OECD website:

It is interesting to note that we were overtaken by Switzerland, Spain and Finland whereas we overtook the UK.

It is also important to notice that these are the most conventional world wide statistics used to measure National Productivity, also known as “Labour Productivity”.

Labour Productivity is the ratio of output to the input of labour (hours worked).

However, as we all know, there are lies, damned lies, and statistics“!!!.

So, the ABS, the Productivity Commission (PC) and other organisations also use other productivity measures. The other most commonly used is the MFP (Multifactor) incorporating a blend of Capital and Labour. They consider the MFP to be a better measure of efficiency in general rather than just Labour Productivity as used by the OECD.

The PC goes a bit further by even analysing productivity based on industry sectors, removing sectors for further analysis and by doing so explaining the recent drop of productivity. The reputable Grattan Institute in its most recent study of National productivity comes to a different conclusion as to why productivity is dropping in Australia.

When the MFP is determined by the ABS (depicted in the following chart) the picture is not better:

So not only we have gone from 12th to 15th within the OECD in terms of labour productivity, It looks like we have droppoed even sharper when MFP is used. Over the last measurement (last 3 years),  an avergae growth of -1.5% in MFP is mentioned by the PC and -0.2% is mentioned for 2004-2008. Before that, it was +1.1% and +2.1% avergae MFP. 

There are two reasons why I am beginning to get passionate about this subject:

a)      From the ABS website “When a nation achieves productivity growth, it is able to produce more goods and services from the same quantity of labour, capital, land, energy and other resources. In turn, improved production efficiency can generate higher real incomes and lead to long-term improvements in Australia’s living standards.”

b)      Information Technology is an enabler for better productivity and perhaps we are not investing enough in it.

In this article I just wanted to state the facts as I can find them from the ABS, OECD and other sources. In future articles I will dig much deeper as to what it all means and trying to understand what is going on.

Marco A. Tapia


Aug, 09, 2011