INTHEBLACK February 2025 - Magazine - Page 20
F E AT U R E
“If you’re looking at multifactor productivity, most of it’s
been driven by technological progress, but most of the
technological progress appears as computers from overseas
are getting cheaper. It doesn’t appear at all as productivity
growth in Australia. It appears technically as a favourable
terms-of-trade shock.”
JOHN QUIGGIN, UNIVERSITY OF QUEENSLAND
and is regarded as a better measure of
technological change and efficiency
improvements than labour productivity.
CRUNCHING THE NUMBERS
Falling productivity levels are a worldwide
issue. A 2024 Productivity Commission
inquiry found that just one advanced
economy, Israel, had recorded higher
average annual productivity growth after
2005 than in the decades before it. This is
a far cry from the “golden years” of
productivity growth in the 1950s, 1960s
and early 1970s, when many countries
boomed on the back of strong manufacturing
sectors and dynamic employment markets.
University of Canberra economist
Dr John Hawkins, whose résumé includes
roles at the RBA and the Hong Kong
Monetary Authority, says that in Australia,
productivity has “flatlined”. Some put the
blame on record-low unemployment, which
has resulted in the long-term unemployed
joining the workforce and stunting
productivity, at least initially. Hawkins
adds that the modern dominance of service
industries, in which there is less capacity
to lift productivity compared to former
stronghold industries, such as manufacturing
and agriculture, is also a factor.
The RBA notes that the Australian
Bureau of Statistics (ABS) is responsible
for measuring outputs and inputs for
different industries, sectors and the economy.
Productivity, as such, is not measured directly,
but is calculated by dividing a measure
of output by a measure of inputs.
It reports that output, measured in terms
of gross domestic product (GDP), refers
to a quantity of goods and services produced
during a given time. For an industry or sector,
it is usually measured by gross value added
(GVA), which is the total value of goods
and services produced, less those goods and
services used in the production process.
20 INTHEBLACK February 2025
Output for the whole economy can be
derived by calculating GVA across industries.
With inputs, labour and capital are the
two main elements. Labour is typically
measured as hours worked among people
who are employed. Capital is measured
as the flow of services coming from capital
stock, which includes buildings, machinery
and equipment, livestock and plantations.
At the ABS, Bjorn Jarvis is head of
the labour statistics team that produces
statistics on the hours people work. He says
producing “more holistic” statistics on MFP
is important, but it is also more complex
and time-consuming.
“That’s much more challenging, because
you’re talking about bringing in more
elements. This is why we calculate MFP
on an annual basis, compared with quarterly
insights into labour productivity.”
IMPACT OF TECHNOLOGY
As the global economy is increasingly built
around services and human performance,
rather than just the making of goods, some
critics argue that productivity is no longer
the metric that matters the most as a
measure of organisational performance.
A common critique is that standard
measures such as labour productivity
and MFP do not adequately capture gains
from innovation related to information
and communications technology (ICT).
However, Professor John Quiggin at
the University of Queensland’s School
of Economics believes GDP statistics
still provide valuable information to
policymakers about the short-term state
of the economy. In an economy subject
to dramatically divergent trends, however,
he questions their usefulness as a
long-term measure.
“These aggregate index numbers are
ceasing to be incredibly useful,” says
Quiggin, who observes that the national
