Productivity growth

Productivity growth - or more specifically labour productivity growth - is the growth in output per worker. Krugman once famously said:

Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker. World War II veterans came home to an economy that doubled its productivity over the next 25 years; as a result, they found themselves achieving living standards their parents had never imagined. Vietnam veterans came home to an economy that raised its productivity less than 10 percent in 15 years; as a result, they found themselves living no better - and in many cases worse - than their parents.

So how is Australia doing? Well, perhaps not so good.  Over the past decade our labour productivity growth has been slowing. My back of the envelope calculations follow. They are drawn from the ABS National Accounts and the ABS labour force statistics. To see past the increasing number of part-time workers, I have looked at GDP per hour worked rather than GDP per worker.

In the next chart with the 41-term Henderson moving average - effectively a decadal moving average - we can see the underlying decline in the labour productivity growth rate. In the last decade it has declined from an average of 3.3 per cent per year in the late 1990s to (perhaps) zero.

Another way to think of labour productivity is to examine GDP per dollar paid in wages. While it was difficult to find whole of economy data, data in respect of the non-farm part of the economy was available from the ABS analytical series on the national accounts. The data tells a story with some differences - not so much one of decline over the past decade - but of productivity growth that has been close to zero since the early 1990s. 

It is arguable that the latter charts tell us that workers have continued to share in the growth of the economy.

However, if productivity growth is almost everything in the long run, the earlier charts alert us to a significant underlying problem in the Australian economy.