Australian productivity falls from low to zero


Via the PC:

Labour and capital inputs explain much, but not all, of the economy’s growth in output. The residual source of growth — MFP — captures all other factors that influence output, including improvements in dynamic efficiency, measurement error, and structural changes in the economy.

Economy-wide MFP grew by just 0.4 per cent in 2017-18 (table 1 and figure 1.6). This rate of growth is the lowest since 2010-11. It is, however, above the average rate for the last complete cycle from 2003-04 to 2011-12. Of bigger concern is that it is well below the rates achieved in the ‘golden’ productivity era between 1993-94 and 1998-99. As was the case for labour productivity, the MFP performance of the market sectors have also been relatively poor.

At the individual industry level, almost half recorded MFP growth in 2017-18 (figure 1.7). Administrative and support services recorded the strongest growth (8.0 per cent). Four industries recorded strong growth of about 3 to 4 per cent: accommodation and food services, professional, scientific and technical services, finance and insurance services, and manufacturing.

The construction industry recorded its fourth consecutive year of negative multifactor productivity growth (figure 1.7).

Of all industries, the agriculture, forestry and fishing and arts and recreation services recorded the largest falls in multifactor productivity growth in 2017-18. In the former case, rainfall conditions are probably the culprit as existing capital cannot be used as productively when there are drought conditions. It is unlikely that there has been any change in the inherent efficiency of the industry or its technical progress. Indeed, farmers’ adaptations to manage drought conditions would, if correctly measured, represent technical progress.

So many issues at work including:

  • over-consolidation;
  • over-reliance on services (although that may change with automation);
  • massive capital misallaoction into unproductive speculation;
  • insufficient innovation;
  • crush-loading of everything via mass immigration and useless catch-up investment
  • no policy reform.

And on it goes leading to fat cats taking the cream as labour works its arse off for no gains:


Full report.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.