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Productivity Perspectives 2006 How Strong is Australia’s Productivity Performance?

Productivity Perspectives 2006 How Strong is Australia’s Productivity Performance?. Dean Parham and Marn-Heong Wong Productivity Commission, Canberra. Motivation. Review productivity performance over the lastest cycle Why the slowdown? Was the 1990s surge just a temporary blip?

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Productivity Perspectives 2006 How Strong is Australia’s Productivity Performance?

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  1. Productivity Perspectives 2006How Strong is Australia’s Productivity Performance? Dean Parham and Marn-Heong Wong Productivity Commission, Canberra

  2. Motivation • Review productivity performance over the lastest cycle • Why the slowdown? • Was the 1990s surge just a temporary blip? • Does the slowdown indicate ‘static’ rather than ‘dynamic’ productivity drivers? • What has happened to the sources of the 1990s surge? • Innovation based on ICTs • R&D activity • How did the 2004-05 decline arise?

  3. Outline • Proximate contributors to MFP slowdown • Industry contributors • Trends in underlying determinants of productivity growth • Industry contributors to the decline in 2004-05 • Summary conclusions

  4. 2004 - 05 (last year) - 1.3 - 1.7 0.4 Australia’s annual rate of productivity growth 1993 - 94 to 1998 - 99 to 1964 - 65 to 1998 - 99 2003 - 04 2003 - 04 (historical (Cycle 1) (Cycle 2) average) Labour productivity growth 3.2 2.2 2.3 Multifactor productivity growth 2.1 1.0 1.2 Capital deepening 1.2 1.2 1.2

  5. MFP (actual) Output Hours worked Capital services MFP (trend) Annual growth in output, inputs and MFP 6 Cycle 1 Cycle 2 5 4 3 % 2 1 0 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 -1 -2

  6. Outline • Proximate contributors to MFP slowdown • Industry contributors • Trends in underlying determinants of productivity growth • Industry contributors to the decline in 2004-05 • Summary conclusions

  7. Measurement of industry MFP • Not as accurate as aggregate estimates • Indicative of trends

  8. Industry contributors to MFP slowdown 1993-94 to 1998-99 to Change 1998-99 2003-04 (Cycle 1) (Cycle 2) (Cycle 2-1) Agriculture 3.8 3.8 0 Mining 0.2 -0.5 -0.7 Manufacturing 0.7 2.2 1.5 EGW 2.2 -2.6 -4.9 Construction 2.7 0.9 -1.8 Wholesale td 5.5 1.9 -3.6 Retail td 1.8 1.3 -0.5 ACR 1.6 0.8 -0.8 Transport 2.1 2.6 0.5 Communication 3.9 -1 -4.9 Finance 2.2 -0.3 -2.5 CRS -1.6 1.3 2.8 Source: Productivity Commission estimates.

  9. Dominant forces contributing to MFP slowdown in Cycle 2

  10. 15.0 10.0 5.0 y-o-y (%) 0.0 -5.0 -10.0 -15.0 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 Construction (actual) Construction (trend) Mkt sector (trend) Construction vs market sector MFP change

  11. 15.0 10.0 5.0 y-o-y (%) 0.0 -5.0 -10.0 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 Wholesale (actual) Wholesale (trend) Mkt sector (trend) Wholesale trade vs market sector MFP change

  12. 15.0 10.0 5.0 y-o-y (%) 0.0 -5.0 -10.0 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 Communications (actual) Communications (trend) Mkt sector (trend) Communication services vs market sector MFP change

  13. 15 10 5 y-o-y Change (%) 0 -5 -10 -15 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 Output Labour Capital Input, output growth share in Communication services

  14. 10.0 5.0 y-o-y (%) 0.0 -5.0 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 Finance (actual) Finance (trend) Mkt sector (trend) Finance and insurance vs market sector MFP change

  15. 10.0 5.0 y-o-y (%) 0.0 -5.0 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 EGW (actual) EGW (trend) Mkt sector (trend) Electricity, gas and water vs market sector MFP change

  16. Input, output growth and output share in EGW 10 4 5 3 0 Share (%) y-o-y Change (%) -5 2 -10 1 -15 -20 0 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 Output Labour Capital Output/GVA

  17. Summary on industry contributors to cycle-to-cycle slowdown • Construction • Output drop in 2000-01 • Wholesale • Unusually high output growth in previous cycle • Communications • Output drop in 2000-01 • Variation, but recent growth, in labour • Finance • Output drop in 2000-01 • Slower output growth • Electricity, gas & water • Increased use of labour • Increased efficiency of use?

  18. Outline • Proximate contributors to MFP slowdown • Industry contributors • Trends in underlying determinants of productivity growth • Industry contributors to the decline in 2004-05 • Summary conclusions

  19. 100 70 40 % 10 -20 -50 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 Communication All industries Changes in IT investment

  20. 16 11 % 6 1 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 -4 Finance Comm ALL Use of information technology Share of IT in net capital stock Source: ABS national accounts.

  21. $ million 3000 2000 1000 0 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 Mining Manufacturing Services Business R&D expenditure by industry sector

  22. 3.5 3.0 2.5 2.0 R&D expenditure/industry value added (%) 1.5 1.0 0.5 0.0 1993-94 1995-96 1997-98 1999-00 2001-02 2003-04 Mining Mfg Wholesale/retail Finance All industries R&D intensity by industry Data sources: ABS (Research and Experimental Development, Businesses, Cat. no. 8104.0); ABS National Accounts.

  23. Innovation • Proportion of businesses innovatinga in manufacturing industry • Increased proportion of businesses innovating in other industries between 1993-94 and 2001-03.

  24. 40 35 30 25 % 20 15 10 5 0 1998 1999 2000 2001 2002 2003 2004 2005 Mining Electricity, gas and water supply Communication services Finance and insurance All industries Human capital: Share of workforce with university degree Source: ABS, (Education and Work, Cat. no. 6227.0)

  25. Trade intensity

  26. Summary of changes in underlying determinants (1990s – 2000s)

  27. Outline • Proximate and industry contributors to MFP slowdown • Trends in underlying determinants of productivity growth • Industry contributors to the decline in 2004-05 • Summary conclusions

  28. Changes in 2004-05(per cent)

  29. 5.0 y-o-y (%) 0.0 -5.0 1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04 Manufacturing (actual) Manufacturing (trend) Mkt sector (trend) Manufacturing vs market sector MFP change

  30. Latest changes in output and labour input(per cent)

  31. Outline • Proximate and industry contributors to MFP slowdown • Trends in underlying determinants of productivity growth • Industry contributors to the decline in 2004-05 • Summary conclusions

  32. Summary conclusions • Productivity growth slowed in 2000s from highs in 1990s. • Slowdown in 1998-99 to 2003-04 cycle: short-term shocks in 2000-01 and structural shifts in some industries. • 2004-05 result no clear evidence of ‘structural’ decline. • ‘True’ underlying productivity growth may be stronger than the numbers indicate. • Evidence of ‘dynamic’ productivity drivers • Underlying determinants remain strong overall. • Wide-ranging industry responses a sign of dynamism at disaggregated level.

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