Labour productivity increasing

In Why cutting wages is a fool’s way to boost the economy Malcolm Farr notes that recent declines in productivity are entirely capital driven, employee productivity has actually been increasing.

The history of the issue is this: From 1993-94, labour productivity rose consistently in what Mr Parham called “very, very strong output per hour worked’‘. Meanwhile, capital productivity was flat, meaning machinery, buildings and mines were less efficient.

There has been a big change in the past 10 years. Capital productivity has tanked, said Mr Parham, dropping 20 per cent since 2003-04.

“And it’s capital productivity that has been the drag on Australia’s overall productivity performance. Because you can see multi-factor productivity, which is often the key indicator of efficiency, has done nothing. If anything it has gone backwards,’’ he said.

And what did labour productivity do while capital efficiency tanked? In recent years it has risen 3.3 per cent a year. Over the same period capital productivity has fallen by 3.4 per cent a year.