By now you know the basics of the “productivity crisis” narrative: Australian workers aren’t productive enough, and wages growth without productivity is inflationary, which means the Reserve Bank must keep interest rates higher for longer.
But the Productivity Commission’s latest annual productivity bulletin puts a bomb under the whole narrative. It’s only nine pages, but it’s all killer, no filler.
“Labour productivity for the whole economy fell by 3.7% in 2022-23,” the commission reports upfront. So far, so Financial Review/Reserve Bank. That’s a huge fall. Narrative intact.
But two industries — wholesale trade, and accommodation and food services — “contributed to more than 50% of the decline”. Okay… that complicates things a little. Still, it’s a huge fall. But why? A single paragraph from the commission explains it:
The decrease in labour productivity was a result of large increases in hours worked for the whole economy and market sector (both 6.9%). This increase in hours worked is unprecedented — the next highest growth rate on record was 4.3% for the whole economy (in 1988-89), and 3.8% for the market sector (in 1999-2000). The growth in hours worked outpaced growth in output for the whole economy (3%) and the market sector (3.8%).
Can we have a round of applause, or at least some acknowledgement, from employers, their cheerleaders at the AFR and the Reserve Bank, for Australia’s workers, who are working longer hours than ever before in our history, and increasing those hours by record rates?
As the commission says, this historic surge in work by Australians isn’t leading to higher output. “The increase in hours worked led to a decline in the capital-labour ratio (4.9% — the largest decline on record), as the capital stock did not keep pace. This resulted in a decline in labour productivity as workers had access to less capital, and as a result were, on average, less productive.”
So the productivity decline is the result of businesses not investing enough. And, you can add, the fact that businesses are operating in a sluggish domestic economy that has been smashed by multiple interest rate rises, curbing demand and crimping output as a result (and let’s not forget distortions of the tax system around negative gearing, capital gains tax and imputation rules for retirees — all rorts that drive investment towards negatively geared investments like housing, not productive investment in more businesses).
None of that fits the narrative of greedy workers demanding pay rises in excess of their productivity growth, or lamentations about how the industrial relations system stifles productivity, does it?
But wait, the commission isn’t done with that narrative yet. Like everyone else, it’s worried about “wage decoupling” — when wages grow at a different rate to productivity. So it investigated how the two were faring.
To do this, it uses something called “producer wages (the wage costs producers face) as distinct from consumer wages (the purchasing power of the wages consumers receive) as the measure of wages”. For the layperson this is problematic, because you don’t go to the shops and buy your groceries with “producer wages” — you’re stuck with bog standard consumer wages — but it’s the measure some economists prefer to use. The result?
Considering the economy as a whole, there is evidence that the growth in labour productivity exceeds growth in producer wages — a signal of wage decoupling.
Hang on… did they say productivity exceeded wages? That’s exactly the opposite “decoupling” that the Financial Review and the Reserve Bank have been issuing apocalyptic warnings about.
Remember, these are producer wages, not real wages, and the commission says it’s mainly happened in the two big trade-exposed industries of mining and agriculture, but it blows up the entire “rates higher for longer” nonsense.
Oh, and, as Columbo liked to say, “just one more thing”. The big collapse in labour productivity last year should be seen in context. Which context?
Labour productivity increased rapidly at the start of the pandemic … [due to] a rapid drop in hours worked, combined with relatively sticky output. The decrease in labour productivity in 2022-23 reversed gains observed at the start of the COVID-19 pandemic. The fall in labour productivity reflects, in part, an unwinding of the distortionary effects of the COVID-19 pandemic. Overall, labour productivity was 0.8% above its pre-pandemic average at the end of 2023-23, and 2.4% above its pre-pandemic average at the end of 2022-23 within the market sector.
Two point four percent higher. Some productivity crisis, eh?
Let’s finish on that earlier point about the long hours Australians are working. Why are they doing that? In part it’s opportunity — we’ve entered a world with too few workers due to population ageing, and it’s pushing our participation rates up. That’s a good thing. But a key reason is that ordinary households are struggling with high inflation — much of it profit-led — and high interest rates for the giant mortgages now needed to buy even modest housing. The Reserve Bank is helping drive this surge in working hours — at the same time as it is smothering output by smashing demand in the wider economy.
It’s vicious circle — the RBA’s actions are leading to lower labour productivity figures, which inflation hawks are then using to justify keeping rates higher for longer, which will in turn drive more people to work longer hours and smother output, leading to lower labour productivity…
Too bad the whole narrative of lazy, greedy workers is, as the Productivity Commission has shown, a load of rubbish.
Is it time the RBA changed course? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
“…we’ve entered a world with too few workers due to population ageing, and it’s pushing our participation rates up. That’s a good thing.”
Is it though? Depends how far you zoom out. If you stay inside the frame that’s brought us to ecological collapse while the vast majority of us work to enrich a few, then… yeah? I guess?
But long ago, I for one realised that most of the things we do are a bad idea. Particularly, agreeing that wage slavery is cool and normal. And allowing money to be the measure of all things. I’m fkn tired of tolerating the absurdity of being stuck in a system which drains all meaning and agency from life, while I’m forced to spend my precious remaining days on this miraculous rock hurtling through the empty void, doing toxic senseless crap at the behest of grey-minded ghouls in order to ‘pay back’ a fictional entity which created the hundreds of thousands of dollars it ‘loaned’ me at the press of a button, so I can ‘own’ my home which was built on very definitely stolen land. It’s all just such a steaming pile.
Can we PLEASE hurry up and start working on figuring out a better system, before all our options go away and the looming apocalypse is upon us? Stop working within the frame.
I mean, stop thinking inside the cell.
SNAFU continues till end of days. And when your down at the beach trying to get onto a boat to avoid dying and money is worth nothing, someone will be there to make you pay with what ever you have to trade.
Odds are you get turned back.
Couldn’t agree more
Couldn’t agree more. What a better system would be is difficult. It would not include a concept like, “Too few workers”. It’s easier to say what it would leave out, than new things to include. All products 100% easily recyclable. 40 yr moratorium on birth. Ditto on fish take. Ban politicians, soldiers. All laws filtered through internet, voted by all. Nah, can’t come up with a single idea. Shoot 90%, including me? Start a nuclear war? Let’s face it we’d have to be a different species. There used to be some but we seem to have out-competed them. Maybe we should only vote for philosophers. Looking back at other periods, other places and systems, they all seem to have done OK without all the stuff we have now. Maybe it was electricity.
Wars have been the traditional means of reducing male unemployment and boosting GDP.
Nuclear war is probably too efficient though, too few bodies for burial and not much demand for prosthetic limbs.
Current events show making conventional bombs is good for the USA industrial/military industry and the USA economy.
Some decades ago I read that the USA economy was 10% armaments production. Whether that was in value or jobs I don’t recall, but it was regarded as essential to the economy.
There are 20,000 nuclear weapons hot-to-trot, and supposing half of them detonated, say, fatalities would be around 10% of people. Only a blip. But the following loss of crops would knock off maybe two thirds of the remainder, what with wars over what was left. This is not a likely scenario imo – if it was going to happen it would’ve already.
A mass coronal ejection, a 1 in a 1000yr G5+ event would knock a hole in civilisation by destroying power grids. Imagine a city where the toilets wouldn’t flush, and the only money was what cash you had in your pocket. But I can’t see it coming to the rescue. It would at least put the RBA out of business though, because the doors wouldn’t open. Ho Ho.
“Every civilisation [that is] based on extraction, infinite growth and expansion is terminated…” – Tyson Yunkaporta. And that observation holds, regardless of the technology such civilisations have wielded. And they’re all short-lived cultures – a few hundred years at most – clearly an unsuccessful strategy. To describe them as a success, as many still do, is akin to describing a mouse plague as successful from the mice’s point of view (it’s the dominant species, using that dominance to reshape diverse ecosystems into monocultures for themselves) – and making that claim the day before their entire population collapses as they’ve trashed the resources they depend on. Pretty silly really. But such cultures and civilisations aren’t the only human options out there – there have been, and still are, many more that have proven resilient and successful for significantly longer periods of time, with very different values systems. The role models exist and have proven themselves. We just need to get on board.
There are signs and traces of just such a civilisation all over this country – it’s impossible to avoid them, when you know; they’re everywhere.
Living in a city, people are more and more divorced from the natural world, which I see as a big part of the problem. That, and our timescale. Plus so much else. Chimpanzees go to war with their neighbours, but they are smart enough to not kill the forest they live off.
We’re at 11.59 in the old ‘microbes in a jar doubling every minute’. Nobody notices a thing until some stage during the last minute (the last doubling of the population).
There are not too few workers, as there are many unemployed particularly amongst the young who cannot get a real job (not a contract or casual work, but a more secure ongoing role). The myth of too few workers is to frighten those who have jobs and keep them in line, as well as to get the government to supply them with cheap workers via foreign worker arrangements, overseas students competing for flexible work, refugees who’re not legally allowed to work, work for the dole schemes etc. All of these people have to accept the jobs they’re given, no matter how poor the conditions. There are too few Australians willing to put up with the abuse of so many employers who bully them, steal their wages, don’t pay their super, refuse their leave entitlements and their breaks through the day, some even timing their toilet breaks. These same employers expect their workers to be available whenever the boss wants them often with no notice or pay, as was clear by the ruckus caused with the new legislation allowing workers to ignore contacts after hours and on weekends. People are just fed up with being screwed by demanding bosses who take all they can and give little in return, based on their personal senses of entitlement.
Nothing to do with the subject on hand,but why does Crikey persist with the Yank version of dating Today should be 1st March 2024,not
March 1st 2024.Day,month,year,simple,isn’t it.
It’s rampant in Australian media.
The number of workers is exactly right, in fact. As it always has been. The ‘problem’ now is too many jobs – invented by industry/economists for people who do not exist. You cannot show me a working economist or a CEO who stacks shelves at night. For the sake of argument, let’s say that all these invented jobs could be filled by immigration. This would create ever more invented hypothetical jobs – to teach their kids, build their houses, unblock their drains, provide their health care. The more people we bring in the more people we have to bring in.
The plague killed half the people in Europe. The employers suffered less than the workers who were unable to run away. So it was difficult after that to hire ostlers, or housemaids, and wages went up accordingly and workers could pick and choose, finally (and briefly). In England the ruling class even passed laws that workers could not leave their home shires (tempted by better pay and conditions). The lack of workers was an inconvenience for the wealthy, then as now, but that’s all. Maybe they substituted slaves from Africa as their immigrants for at least some of the jobs, but back in the day most work was generational in skills such as blacksmithing.
Forgotten where I was going with this, except that more people = more jobs, and it’s never ending.
We are now in the position with AI and robotics that a society could be devised in which people would only work as they wished. Computers abolished many jobs and there are now no filing clerks or typist pools, as such. But they didn’t all go home and get their pay as before while machines did their work. But they could have, in a different society.
We have to suppress the urge to put boots on necks.
“Productivity” is a nonsense in a modern economy.
To make money in a modern economy one needs to be as “unproductive” as possible.
Seriously there’s nothing more profitable and less productive than flipping properties.
And any services based industry or industry that charges by the hour or day is specifically incentivised to be as unproductive as possible.
Meanwhile anyone who actually works hard for a living – nurses, aged care workers, teachers, women – gets paid c*^p.
Productivity doesn’t pay.
There is an underlying flaw in such analysis reflecting a ignorance of data or statistics 101 principles.
In the past it was simple when the estimated resident population (ERP), including working age, was dominated by citizens, permanent residents and Kiwis. However, for the past generation and more so since 2006, our ERP has been diluted by the NOM net OS migration or border movements of students and backpackers with majority not working full time but included in the ERP, hence, lowering paper based headline productivity.
Good analysis would do a deep dive into cohorts e.g. parsing out the long term NOM temporary churn over and focusing on the permanent population working age cohort.
For example, there has been a NOM surge post Covid (catch up) spike which would distort data negatively, i.e. make worker productivity less than it it is in reality; makes easier for employers to whinge and moan.
Why would you measure productivity based only on “the permanent population” ?
Productivity in this context is a measure of hours worked against output – if fewer hours are worked for the same output, or more output is produced for the same hours, or some combination thereof, productivity is rising == good.
Whether the hours are worked by an Aboriginal, and Australian who can trace their lineage to the first fleet, or a student who arrived last week, is irrelevant.
Catch up to what ? There are no NOM targets (at least, no official ones).
However, yes, it should be clear that productivity has recently crashed for the same reason it spiked during the COVID lockdowns. The exit, and then return, of a large number of low-productivity workers.
Because the permanent population is relatively stable for grounded analysis vs. the ‘froth’ on top that media focuses upon and falsely describing as ‘immigration’, suggesting permanence, not true.
The NOM, which varies a lot, can be seasonal, impacted by one off events and due to the churn nature of the same variable measuring temporary and short-medium term border movements.
Borders were closed during Covid, leaving many temporary residents within and then many newbies arriving post Covid; nature of the NOM mechanism and variable, spikes data for short term ‘data noise’ that passes (after contributing to budgets).
Any analysis of the NOM is fraught with complexity and lack of clarity as it is neither a visa class nor a program, just border movements, also signifying increasing mobility of younger people and working age globally vs. ageing permanent population cohorts.
The use of “NOM” in this context makes no sense.
You were originally stating that only the permanent population should be used when calculating productivity (and presumably other related) statistics. Ie: not the ~2.5m people on temporary visas.
Given these 2.5m people are supposedly vital to the functioning of the economy, that seems… ill advised.
You are also continuing on with the lie that population is difficult to estimate and NOM an unreliable measure, despite a) zero evidence of this and b) both supported by corroborating data.
Yes, MH, I think there’s a hidden rule in financialised capitalism that dictates an inverse relationship between pay and actual usefulness.
I remember years ago talking to a young Intern doctor at the end of his internship, who was leaving Adelaide for Sydney to work as a futures trader, because the pay was better. So we pay someone more to gamble with other people’s money on the phone than sillfully treat people suffering with ill-health.
How does a back-bench MP ‘earn’ twice as much as a senior teacher?
How does a marketing guru producing nothing but spin ‘earn’ four times as much as a farmer or a bus driver with the responsibility of 60 lives in his hands?
skillfully treat.
Wage growth ?!
Real wages have regressed ~15 years in the last 18 months.
And did our factory education prepare us for life as a factory worker/manager or for life as a smart investor? Shouldn’t we all be jamming all our money into super and retiring at 45?
Sell up, get a campervan, get a diagnosis, get a disability pension, and stop caring.
They gotta make up for the inconvenience caused by – and profit loss due to – Covid somehow!
Let us not forget that higher interest rates affect investment even when money is not borrowed, i.e retained earnings. The bond rate effectively sets a minimum required rate of return for any investment. Why would a business or individual invest in plant and equipment for a 3% return when they can sit on lazy bond income at 4%? While a business overall might show a much higher rate of return on equity, the improvement to that from capital investment is marginal at best. So, we can argue that the RBA is to blame for plunging investment as much as lazy business leaders.
“Independent” central banking, in general, seems to be a massive blame shifting exercise. Blame the worker for every problem, then make the worker pay to fix it.
But there’s not too few workers.
Un- and underemployment is heading back up, real wage growth is minimal at best and more workers are entering the workforce than leaving it.
If anything, there are too many workers (or not enough jobs, depending on your perspective).
Well said. We know there’s enough workers to satisfy the NAIRU boffins when wages actually go up faster then inflation. We’re not there. Not by a long shot.