Resource Allocation

Measurement Limitations

There are several limitations associated with the measures of productivity that have been adopted by the Australian government. You will need to be aware of these limitations.

The changing structure of the workforce has resulted in increased competition amongst workers. Whilst this has created some productivity gains, it has also resulted in a huge increase in the number of unpaid overtime hours that some employees are willing to work. As these hours are not recorded, they do not appear in any measure of productivity. This means that GDP will increase with no apparent inputs, and the measure of productivity will appear more favourable than it really is.
Associated with the first point, an increase in working hours may lead to a fall in the standard of living for certain workers. In an effort to increase output, some people may find that they are working extended hours. This will affect their family lives, and their own relaxation time.
As with any measure of the entire Australian economy, there are certain statistical figures that are unlikely to be exactly correct. We are already aware that the measure of GDP has certain limitations which make it unlikely that figure is 100% accurate. As such, the consequential measurement of productivity will also have errors.
The measures of productivity that are calculated by the ABS reflect overall changes in the Australian economy. This disguises the fact that some industries may be achieving excellent productivity gains, whilst others may lag behind. For example, it has been seen in Australia that those industries which have previously been protected by tariffs have been “forced” to become more productive. Improvements in those areas may have offset falls in other areas.
Increases in GDP can rarely be attributed to any one factor. In calculating the rate of productivity in the Australian economy, we divide by either the number of hours worked, or the cost of inputs. This overlooks the fact that other factors will have contributed to the change in GDP.
The measures that we have at the moment ignore the fact that the quality of the goods and services being produced may have changed. It is relatively easy to increase output if the quality is sacrificed – ideally we would prefer to increase both the quality and the productivity of Australian goods and services.

Current Page: Measurement Limitations