The biggest single brake on Australian productivity is the mining industry, where productivity has declined by more than a quarter in the past two years, an analysis of ABS data reveals.
Industry gross added value per hours worked data from the most recent national accounts and labour force data shows a fall of 14% in the mining industry in 2011 in nominal terms, while it grew in the overall economy by 2%. In contrast, in the under-pressure manufacturing sector productivity increased by 8% in 2011. The construction sector has also lifted productivity over the past year, with gross value added per hour up 7%. Productivity in retail, which is far more stable than in most industries, was flat.
However, productivity in the health and social care sector, the biggest and one of the fastest-growing employers, only grew 2.4% and was down on two years ago. It also fell over 4% in public administration.
The figures illustrate why the story of Australian productivity is far more complicated than either the business sector or its media cheer squad will let on.
The business/media narrative is that only the 1970s-style restrictions of the Fair Work Act, greedy unions, regulation and high corporate taxes stand in the way of Australia continuing the productivity revolution of the 1980s and 1990s.
Whether that revolution even happened remains a matter of debate, but let’s leave that aside for the moment.
The story from industry-specific figures, however, shows simply: different industries have different productivity challenges. This seemingly obvious point often goes missing in the productivity debate (such as it is).
For example, GAV per hour in agriculture is tremendously volatile for obvious reasons — agriculture is seasonal, and prone to external factors such as drought (or flood). In retail, it’s far more stable, despite claims that the Fair Work Act has imposed unreasonable constraints in employers. Mining is the most productive industry per se — more value is produced per hour than any other industry, with only financial services even close — but its poor productivity growth performance is attributed to its massive expansion through investment and employment growth, with output failing to keep pace. Higher commodity prices also make more difficult, lower-productivity mines more viable.
Construction, in contrast, has seen a shift from residential construction to larger-scale infrastructure and civil engineering, which will have driven smaller, less-efficient contractors out of business and generated greater economies of scale in large projects.
The best productivity measure is competition. There’s no surprise that manufacturing has generated a big rise in productivity: it is under tremendous pressure from a high dollar and the resulting foreign competition; less-efficient firms are being forced out and managers in the rest of the sector are hunting for the efficiencies they let slide when times were better. From this point of view, the higher dollar is driving a productivity shock through trade-exposed industries, and the more we do to shelter industries from the impact of the higher dollar, the more we negate the resulting productivity improvement.
Public sector productivity is critical. Conversely, sectors without competition are more resistant to the search for efficiencies. That’s partly because productivity can be much harder to accurately measure, particularly in areas of the public sector where key decision makers are entirely divorced from the ramifications of their decisions, as is the case with politicians.
But as Australia’s largest employer, and likely to one day employ one in six Australian workers, productivity in the health sector is crucial to our overall productivity performance, as well as a major and growing call on the budget. The extent to which the federal government’s 2011 reform package improves competitive pressures in areas such as performance information, more local management and less separation between funder and provider will have ramifications for productivity for decades to come.
Very interesting and logical article. The obsession with IR to drive productivity is patentl y wrong and it is innovation and technology which will have the biggest impact. It would be interesting to see the impact of the 50% immediate write off for assets as part of the stimulous package has had and will have on productivity, especially in the manufacturing sector.
Also while all the focus has been on the corporate tax rate for small business the increase in the threshold for immediate write off of assets to $5k will have a much bigger impact and should improve productivity.
On the final point regarding the health sector, Victoria’s experience with a similar funding model would indicate that we shold expect significant productivity gains from the 2011 reform package.
Good to see that you have pointed out mining drags down productivity figure, and they probably will not pay tax when the MRRT come into effect because of expenditure as well as royalty deduction.
Just because there seems to be some over the top cry from business about unions and IR law does not mean there is not some truth in it. I would keep an e.y.e on that as well as labour competition to see if uncompetitive environment breeds under-skilled workers and drag down productivity.
I can only partially agree with your comment on the high dollar. Yes company need to restructure but we have an over-valued dollar due to carry trade (capitalising on the RBA high interest rate compared to the rest of the developed world) this is akin to having the dollar fixed at higher price than its value was worth before we floated the dollar. This is not good for the economy and not only it harm our industri es if this drags on for too long it can cause complacency and inefficiency in the imports sector and they will get a big shock when the dollar finally comes back to its real value.
I’d like to digress a bit. Ernst & Young’s study found that we could loose 118,000 jobs over the next three years in the retail sector but 33,000 jobs can be saved if we abolish the $1,000 threshold for GST when shopping online.
The productivity commission may have found it costs more to try to collect the GST but I think it is worth it to save jobs. The government hand out subsidi es to the car industry easily, why not help the retail industry until we find a good way to deal with it? Isn’t there any union in the retail sector? Why are the employers the only one taking up the fight? Online shopping, the high dollar and Australian tourists going overseas to spend instead of locally is damaging the local retail industry.
May be there are some smart IT programmers out there who can create a filter to work in conjuction with electronic transfer providers which can automatically take out 10% of the purchase transaction and put it into an ATO account and a transaction number is given to the customer. If the customer returns some of the products, he provides the transaction number to the merchant. The merchant is authorised to log into a special section of the ATO system providing the customer’s transaction number as well as the merchant’s id or account when the purchase occurred and process a reverse funding to the customer’s account with whichever GST amount the customer is entitled to. If not claimed within 65 days then the money will become the ATO’s completely.
“Industry gross added value per hours worked”
Is that the only possible way we can measure this nebulous thing called ‘productivity’?
Is that in fact the best way to ‘measure ‘ productivity?
Until we have a debate about the ways our thinking and actions are confined and restricted by the very definitions of the terms we use to allegedly measure whatever it is we appear to be talking about then all we will ever be talking about are those terms and the possibly distorted image of reality they present.
Its a good article, but because it takes the narrow and possibly, or even certainly, inappropriate criteria used by industry as set in concrete gospel truth it will never be the full and proper discussion of the economic and, here’s the crunch, social issue that the term ‘productivity’ hides in our society.
The present discussion is about ideology not reality.
Could we hope to see an end to those annoying late night TV adverts from those supposedly employed by mining who talk as though they alone are not only true Aussies but somehow work harder and contribute more to society, than say nurses or shop assisants?
Despite the wretched and bogus claims from employer’s unions about how the sky will fall in if workers are paid more, the mining industry must therefore demonstrate that paying larger wages to it’s workers increases productivity.
I’ll worry about productivity increase/decrease whatever the day an economist calls on economists to increase their productivity. I would estimate the GAV of most economists at around zero with a severe dip any time an industry acts on their advice.