Productivity – a Dead End?

By Ian McAuley

In the March quarter National Accounts, the Government took glee in finding a rise in productivity. After three years of flat performance, productivity finally showed a small rise in the latest two quarters. Thus was the Government's WorkChoices policy apparently vindicated. Lets look at little harder.

It's a sign of our times that politicians should become excited by one statistical estimate, in a data series subject to noise and sampling error. In all probability the recent rise is simply a statistical return to the trend after two quarters of abnormally low returns.

Over the last thirty years, productivity, as measured by real GDP per hour worked, has risen at about 1.6 percent a year, but over the last three years it has risen at only 0.7 percent a year. Productivity growth has had its ups and downs - its biggest spurt was in the mid 1990s, which most commentators put down to the effects of information technology and the economic reforms of the Hawke-Keating Government.

To attribute the recent rise to WorkChoices is not only spurious statistically; it also ignores the reality of economic activity. The effects of policy changes are slow to show up in statistical indicators. Businesses have inertia. They have planning and budget cycles. If they install new technology or change work practices there are lags in installing equipment and in learning new methods. If WorkChoices is to have an effect on productivity we are unlikely to see it for some years.

And that effect is likely to be negative.

As McAuley sums up: WorkChoices needs to be seen in its proper context. It's the centrepiece of Howard's vision of a future where most Australians, rather than enjoying the dignity and independence of well-paid employment, will remain in low productivity dead-end jobs and ongoing welfare dependence, with meagre wages supplemented by government handouts.

(Centre for Policy Development. June edition 2007)