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Australia's Recent Performance

For a long time, Australia has had a poor reputation in regards to workplace efficiency. The culture of inappropriate staffing levels, long lunch breaks and the “Great Australian Sickie” meant that for many years Australia was unable to keep pace with the rest of the world. In the ten years prior to 1992, labour productivity increased by an average of 1.1% per year. The Keating government at the time committed themselves to improving the rate of productivity in the Australian economy, and this was adopted by the newly elected Howard government in 1996.

As a result, we saw a significant improvement in productivity gains during the 1990’s. Given the goal of achieving productivity gains of between 1.5% and 2.0% per year, it is impressive that the Australian economy was able to average annual increases of 2.1% during the ten years after 1992.

However, there has been more variation in the rate of labour productivity since 2002. This can be seen in the graph below.

Labour productivity in the Australian economy

It is particularly notable that the Australian economy achieved four consecutive years of productivity improvements in excess of 3.0% between 1996/7 and 1998/9. Although it is controversial, the timing of these gains suggests that the Workplace Relations Act of 1996 was significant in this regard. (Although this information is more than ten years old, it is important to understand what happened during this period. With further reform to the labour market in 2005, and a change of government in 2007, the strong results after 1996 must be understood so that appropriate policy decisions can be made in the future.)

In the lead up to the introduction of the New Tax System in July 2000, investment fell. As a result of this, it was more difficult to maintain consistent improvement in this area. However, after the initial teething problems, confidence returned. And with renewed confidence came renewed investment – productivity improvements reached a new high 2001/02.

In 2005, the labour productivity fell for the first time in many years. This is an extraordinarily poor result, and one that must be addressed in the very near future. The flow on effects of falling productivity rates are dramatic - we will see a fall in aggregate supply, which can lead to lower rates of growth, increasing unemployment and higher levels of inflation. As such, this problem must be addressed quickly. The former Australian government was certainly pleased to see that labour productivity improved by 2.2% during 2005/06. Despite this, criticism of their approach to productivity concerns contributed to the change of government in November 2007.

The problems seen with labour productivity have also affected the outcome for multi-factor productivity. The trend for multi-factor productivity is also generally positive. The figures fluctuate with an overall average for the period of just over 1.5%. However, it is significant to note that just as labour productivity fell in 2000/01, multi factor productivity also recorded a lower figure. Similarly, in 2004/5 we experienced a significant decline. In this instance, the fall can be largely attributed to the decline in labour productivity, decreased levels of investment (associated with higher interest rates) and an inability to find skilled labourers (the skills shortage). This trend is reflected in the chart below.

Multi-factor productivity for the Australian economy

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