Productivity

Productivity Commission draft goal:

Maintain a multi-factor productivity rate of at least 1.5% p.a.

What is multi-factor productivity?

Say there is a Holden factory next to a Ford factory. The Holden factory is producing 400 Commodores per day and the Ford factory is producing 400 Falcons per day. Both factories produce the same amount of product per day.

Now, let’s say there are 10,000 people working in the Holden factory each day and 12,000 people working in the Ford factory each day. Because the Holden factory produces more cars per day per worker than the Ford factory, Holden has a higher rate of labour productivity than Ford.

Multi-factor productivity includes the productivity of other inputs aside from labour such as machines. Therefore, multi-factor productivity is a more complete way to measure the productivity of a business, industry or economy.

What are the recent rates of multi-factor productivity for Australia?

The most recent data on multi-factor productivity shows that in the past few years Australia has had up to minus 1% productivity growth (1).

Why is multi-factor productivity important?

Let’s say that a negative rate of multi-factor productivity continued into the future for Australia. If that occurs then businesses are becoming less efficient each year at producing products and services and the public service is hiring more workers but producing less beneficial services per worker for society.

In the private sector, Australia’s export industries will become less and less competitive internationally. International consumers will view Australian products as inferior in quality and higher in price than products from other more productive and innovative firms around the world.

In the public sector, the decreasing productivity will require increasing numbers of workers to produce the same amount of services. Taxpayers, whether as individuals or businesses will have to pay increasing rates of tax to fund the ever increasing bureaucracy.

On the flip side, if Australia maintained a positive annual increase in multi-factor productivity, the above negative reality becomes a positive reality. Businesses become more competitive and consumers can purchase higher value products even if their incomes remain the same.  Consumers can either pay less tax because the public service is becoming more efficient, or the tax savings can be passed on to the public by lowering the cost of public goods such as public transport, health care and schooling etc.

Things to-do:

  1. Identify which bureaucratic processes are wasting the most amount of businesses time while providing the least amount of benefit
  2. Identify an accurate and fair method to measure productivity in the public service where possible

Note: (1) Eslake, S and Walsh, M 2011, Australia’s Productivity Challenge, Grattan Institute, Melbourne & is available here.

Welfare Policy Goal:

  1. To work toward a reality where no Australian lives below the poverty line.

Things-To-Do:

  1. Improve unemployment rate statistics until they are accurate (example 1, example 2).

Employment Policy Goal:

  1. Raise the minimum apprentice wage so that it is at least $100 a week more than the disability support pension.

For a discussion of the above please click here.