Kevin Rudd, Prime Minister of Australia, recently made a comment saying that Australia's Productivity had to increase to ensure economic growth increased with a gradually aging population. But it appears many of the journalists have misread what productivity is.
Firstly, Productivity is defined economically as GDP per hour worked. So it involves making the most effective use of each labour hour. (i.e increased hours of work or employment doesn't necessarily result in greater productivity...in fact it can lead to the direct reverse). Production is just the growth in GDP.
Australia in recent years has been a bit mixed in it's GDP per hour worked performance. If we graph the GDP and GDP/hour from 1978 to today (using ABS figures) we get the following:-
It seems that getting anything over 1% growth in productivity is quite rare. Has only happened a few times recently; 1981, 1983, 1985, 1991, 1996-1999, 2001 and 2007. In fact Average productivity growth is only 0.4% compared to average GDP growth of 2% over the total period. In many respects, it is more dependent on growth in hours worked (which also averages 0.4% growth over the period). Here is the graph with increase in hours worked added
So to improved productivity, we need to increase the rate of GDP faster than the growth in hours worked. How to do this?
1. Prioritise industries where labour costs are low or non-labour intensive. Can be done through the use of taxation incentives.
2. Innovation of new technology/processes to reduce labour intensive industry i.e Use of robotics/supply chain technology to improve production with same workforce
3. Educate the new/existing workforce through tertiary study/training to improve efficiency across the board.All these things are achievable. It is good that Australia is at least trying to start the debate on these issues as it will be important in the coming years. More money to the University sector and tax rebates for private sector innovation should be a good first step of this process.
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