In a nutshell, both labour productivity, and multifactor productivity have been growing very slowly over the past few years, with recent data suggesting that labour productivity has been almost stagnant. This has set off a predictable torrent of writings from the likes of Peter Reith calling for the reintroduction of WorkChoices, or something very much like it.
Brooker suggests that the apparent poor productivity performance may be due to a number of short-term, cyclical factors – for instance, the massive investment of labour and capital in new and expanded mining operations may reduce productivity temporarily, as they do not contribute any production until they are actually in operation!
Furthermore, he suggests that “producer real wages” have fallen, particularly in the mining sector but to some extent across the entire economy. In a nutshell, sure, wages for mining jobs have gone up, but commodity prices have gone up even faster. In such circumstances, the incentives are for mining companies to hire more labour, rather than improving the productivity of the labour that they have.
One minor quibble with Brooker’s piece is his (seemingly somewhat off-the-cuff) statements on the effectiveness of education reform:
The more recent economic reform agenda is concerned with improving and expanding the reach of education and training as well as improving the efficiency of the delivery of government services, especially health. These reforms can be expected to lift the level of structural productivity (although not necessarily its growth rate) but over a lengthy time horizon. Realistically, educational improvements would need to have been implemented for an entire generation before their effects become measurable. Commendable as such policies may be, they should not be justified on the basis of relatively short-term, cyclical fluctuations in measured productivity.
Brooker’s broader point – if the current productivity growth slowdown is the result of short-term factors, goverments don’t really need to do anything about it – appears reasonable, but not all educational improvements will take a generation to have an impact, particularly in the tertiary and vocational sectors.
In any case, a useful counterpoint to the increasingly loud bleating about IR from sections of the business community, who are as usual more interested in increasing their piece of the pie rather than increasing the pie’s size.