Well…forgive the headline. Mining making us less “productive” would be more accurate. I’ve certainly been less than nimble in bringing to your attention a new study by the Australia Institute into Australian productivity. It was released six days ago but better late than never.
And what a fascinating study it is. Explosive even:
The recent debate about productivity trends in Australia has revolved around the reported decline in labour productivity growth. For example, the new Secretary of the Treasury, Dr Martin Parkinson recently stated:
Australia’s productivity growth — measured in terms of both labour productivity and multifactor productivity — has slowed, and there is little reason to believe it will improve in the immediate term.
Similarly, the latest Reserve Bank of Australia (RBA) Board minutes stated ‘Australia’s productivity growth over the past five to ten years had been weak’.
The national decline in the trend rate of productivity growth has in turn been used to justify the need for further labour market reform, for workers to lower their expectations about future wage rises and for further microeconomic reforms.
The problem is, however, that a detailed examination of the national productivity figures makes it clear that the productivity of Australian workers is actually rising quite rapidly. In fact, the apparent decline in labour productivity vanishes once the data is adjusted for the very large reductions in productivity in the small, but rapidly growing, mining sector.
And here is the data, charted quite nicely:
The analysts conclude that the decline in mining is a result of:
The unprecedented haste with which mining companies are seeking to extract Australia’s mineral resources is inevitably driving down the efficiency and productivity of our mining industry. As companies rush to build new mines as quickly as possible and dig deeper than they previoutsly considered efficient the output per worker will continue to decline. As more and more people are employed in the mining industry national labour productivity growth will continue to decline.
And that the implications for other sectors should be observed by policy-makers:
In his speech Dr Parkinson quoted figures showing that Australia’s annual productivity growth slipped from 2.1 per cent in the 1990s to 1.5 per cent in the 2000s. It is far more illuminating, however, to describe the productivity performance of the non-mining and mining sectors of the economy separately. This can be done by removing both mining output and the hours worked in the mining industry from the national figures and analysing the residual.
When such an adjustment is made productivity growth actually increases from the 2.1 per cent cited by Dr Parkinson to 2.4 per cent in the 2000s in the non-mining sectors of the economy. Figure 2 provides a comparison of the trend in productivity in the mining and non-mining industries over the period 1995 -2010.
The results of this disaggregation make clear that the existing industrial relations and wage setting arrangements in Australia are not acting as an impediment to productivity growth. The measured decline in average labour productivity is being caused by the unprecedented haste with which Australia’s mineral resources are being extracted. That is, high commodity prices are encouraging mining companies to exploit mineral deposits that require more energy, more capital and more labour to extract an additional tonne of output.
As more and more workers flood into the rapidly growing mining sector the adverse impact on the average rate of productivity growth will be exacerbated. It would be inequitable, not to mention ironic, if policy makers were to confuse this measured decline in average productivity with some failing on the part of employers and employees in the non-mining sector. On the contrary, if it were not for the high rate of productivity growth in the non-mining sectors then Australia’s average labour productivity would be much lower.
I learned something today.