From the AFR:
Productivity experts have said it is too late to avoid the country experiencing a sharp drop in growth and living standards when the mining boom ends in the next few years, backing predictions of a “growth cliff” made by National Australia Bank chairman Michael Chaney.
Clearly the AFR did a bit of a ring around and got some sound bites to offer the appearance of a debate.
Some bloke from UTS said:
“Lifting productivity is a medium to long-term project, and it’s unlikely or close to impossible to achieve productivity increases that could make up for the fall in contribution to our national income from the commodity price gain,” Professor Green said.
Some sheila form the AiG said:
“It’s fairly apparent there’s something going on at a national level that is affecting businesses’ ability to improve their productivity across the board,” Ms Toth said.
Some bloke from the Opposition held a snap press conference and said:
Australia needed to address flexibility and militancy problems and “above all else the productivity problem”.
“But it’s got to be careful, cautious responsible reform which acknowledges the absolute necessity of preserving people’s take home pay,’’ he said.
This is all a bit of a waste of time. Here is some much needed detail. Labour productivity has the following history (from Dr Don Russell):
It’s a reasonable supposition that Australian labour market productivity is already rebounding from its 2004-2008 slump. Mutlifactor productivity on the other hand is still in the dunny:
The reason why is not hard to fathom. The red bars are “capital deepening”, effectively the capital input into production, and look at the incredible growth owing to the mining boom in the last bar. It makes sense that an avalanche of new capital into major projects that take many years to produce will reduce productivity.
Here is what this period did to Australia’s trade weighted real exchange rate (the red line):
Not pretty but not overly mysterious either: high capex, high wage growth, low productivity, high currency.
But as the mining boom delivers greater volumes of sales and labour passes from its hoarding phase into freer capacity and as competition in tradeables continues to blowtorch much of the economy, productivity will rise again.
The problem is we’ve had it so good for so long and have borrowed so much from the future that it will take many years of rises for production to catch up to the spending to which we have become accustomed.
For more on productivity, Dr Russell’s presentation is a great place to start:
