A month after the Productivity Commission published a damning assessment of Australia’s productivity decline over the past 12 years, the ABS has released new data showing that multi-factor productivity (MFP) growth rebounded in 2015-16, although it remains poor:
On an hours worked basis, market sector multifactor productivity (MFP) grew 0.9% in 2015-16. This year marked the fifth consecutive year of un-interrupted MFP growth, and was the result of 2.4% increase in gross value added and a 1.5% increase in combined labour and capital inputs. On the inputs side, capital services growth was stronger (+2.3%) than hours worked (+0.9%), while labour productivity (LP) recorded 1.5% growth for the year.
On a quality adjusted hours worked basis, labour input growth was 1.4%, a result 0.5% higher than labour inputs on hours worked basis. Consequently, quality adjusted MFP grew 0.6% and labour productivity was up 1.0% for 2015-16. The weaker growth in quality adjusted labour productivity reflects a positive contribution from changes to labour composition, due to educational attainment and work experience…
PRODUCTIVITY GROWTH CYCLES
A common method of examining changes in productivity over an extended period involves identifying and dividing the data into productivity growth cycles. By analysing averages of productivity statistics between growth cycle peaks, the effects of some temporary influences (such as variation in capital utilisation) can be minimised, allowing better analysis of the drivers of productivity growth in different periods.
Over the current incomplete growth cycle, MFP in the market sector on an hours worked basis grew 0.3% per year on average. Gross value added grew a moderate 2.5% per year over the same period, while labour input grew 0.6% per year and capital input grew 4.4% per year. On a quality adjusted hours worked basis, market sector MFP was flat at 0.0% per year.
Labour productivity on an hours worked basis grew 1.9% per year on average over the current incomplete growth cycle. On a quality adjusted hours worked basis, labour productivity grew 1.4% per year on average. The weaker growth in quality adjusted labour productivity reflects a positive contribution from changes to labour composition.
The reasons why MFP growth remains poor is pretty straight forward:
massive over-investment in non-productive capital;
inflated land prices, and
over-consolidation in every sector destroying innovation and good management.
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In short, poor economic structure.
And so long as Australia relies on the population and housing ponzi to support fattened and rent-seeking services corporations to make up the heart of the economy, the outlook for MFP will remain poor.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
