Productivity slide behind worst decade for growth in living standards
Income stagnation demands an era of economic reform that matches efforts in the 1980s and 90s, Productivity Commission says.
Average incomes would have been $11,500 higher last year had growth continued at its post-reform era trajectory, the Productivity Commission found, in the wake of the worst decade for living standards growth in 60 years.
Even excluding the pandemic, growth in per capita national output and income in the 2010s were around half the 60-year averages.
In its latest Insights report, the key economic adviser also highlights how Covid-19 has had an unprecedented impact on multifactor productivity, with the broad measure falling for the first time in nearly a decade.
Surprisingly, labour productivity rose as workers shifted to more productive sectors and the shake-out in arts and recreation saw inexperienced and less productive people lose their jobs.
Given government support, such as JobKeeper, has been withdrawn, the PC expects more firms to fail, which could boost productivity. It said it was unclear what would happen to productivity with a post-Covid shift to working from home.
PC chairman Michael Brennan said “preventing business closures during the pandemic undoubtedly cushioned the downturn and helped smooth recovery”.
“As the recovery proceeds, there will inevitably be some reallocation of labour and capital across firms and industries, which is part and parcel of a dynamic economy,” he said.
“Productivity growth is a key contributor to our long-run prosperity. Our high standard of living is a direct result of gains in productivity over many decades.”
Overall, gross domestic product fell by 0.3 per cent last financial year, with per capita GDP – a proxy for living standards – down by 1.7 per cent.
Despite this, capital income in the market sector was up 4.5 per cent while hourly wages increased by 5 per cent, mainly because of the extraordinary levels of stimulus.
Reviewing the decade, the PC found that if pre-2012 growth rates over five decades had persisted, gross national income would have been about $11,500 per person, about one-tenth, higher in 2019-20.
The PC noted productivity stagnation was widespread among rich nations but, like a growing number of former officials, including Martin Parkinson and Gary Banks, it urged policymakers to pursue reformist policies.
“Whether or not the main factors behind Australia’s slower growth in GDP per capita are the direct result of policy decisions, how governments respond will have a lasting effect on living standards,” the report said.
“Considering Australia’s poor economic performance in the 1970s was a key justification for the economic reforms of the 80s and 90s, the fact that the last decade of growth was even worse warrants further reflection.”
The PC said a slowdown in productivity that began in the late 2000s appears to have been exacerbated by falling labour utilisation and falling terms of trade. Rising export prices since 2016 have helped to prop up incomes.
During the mining boom, high mineral prices increased economy-wide “capital deepening”, but much of this extra investment was used to exploit marginal reserves that had a significant lag between investment and mines coming online.
On Saturday, Dr Parkinson, who was secretary of Prime Minister and Cabinet and Treasury, lashed the political class for being idle on economic reform and said seeking to raise living standards was not a “vanity project”.
On Wednesday, opposition Treasury spokesman Jim Chalmers told parliament the imminent Intergenerational Report was a chance for a policy reset, calling on the Morrison government to elevate and refocus the document that has a 40-year horizon.
“Over the five years since the last IGR was published, productivity grew by just 0.5 per cent a year on average, and wages growth averaged just 2.1 per cent per year,” Dr Chalmers said.
“This IGR should be an opportunity to improve long-term thinking and could drive a resurgence in growth, job security, wages and broadbased prosperity.
“It could and should be a pivot point, to modernise our understanding and our thinking”.
Employers failing to monitor prevalence of sexual harassment
New Workplace Gender Equality Agency data shows that more than a quarter of Australian employers are failing to monitor the prevalence of sexual harassment within their workplace.
EV politics reflects city-regions divide
Electric vehicles have had highest take-up in Greens, teal independent, and Labor-held inner-city electorates, raising questions about how the major parties would position themselves to woo suburban voters.