Productivity and the Pathway to Success

My letter in Saturday’s Australian (below) contains, naturally, only a limited coverage of developments under Labor in productivity and labour costs.  Although these developments reflect various influences,  there is an important question as to why they did not perform better in circumstances where Labor has continually boasted about the growth in the economy  being in line with trend of 3-3.5% per annum and economic growth also being much better than in most other countries.  The following might be added.

>The graphs attached to Rudd’s address to the Press Club show the changes in economic growth in selected other countries compared with Australia under Labor since the December quarter  2007. The comparison is not on a per head basis. I have not done the per head calculation but it would probably deflate the aggregate comparison favouring Australia by 4-5 percentage points. The graphs also show one year comparisons of budget balances and net debt (including on a per head basis) but no data on employment growth or increases in labour costs.

>During the 11 years the Coalition was in office labour productivity grew at an annual rate of about 2 per cent, much faster than under Labor.

>Labor has frequently boasted about the 900,000 jobs created (sic) during its period in office (recently this seems to have been increased to 1,000,000). But the rate of growth in employment  has averaged much less than under the Coalition – 1.6 per cent per year (now down to 1.3%) compared with 2.7 per cent per year over a similar period of time.

> Under Labor the unemployment rate has increased by 1.8 percentage points. Under the Coalition it fell over a similar period of time by 1.2 percentage points.

>Prima facie the diminishing growth rate in employment, and increase in unemployment, in circumstances where the economy has grown at trend confirms a faulty regulatory system. Indeed, one could equate the diminishing employment growth with the  increasing regulatory growth.

Rudd failed to explain the pathway to success (Letter published in The Australian, 13 July 2013)

In his address to the National Press Club, Kevin Rudd said that, before falling to annual growth of around 1.5 per cent, labour productivity had improved to 2.1 per cent growth  in the 1990s (“Rudd stand on IR spoils olive branch to business”, 12/7).

He set a target of 2 per cent growth in the future but indicated there would be no change in the Fair Work Act. This despite the adverse effects on productivity of restrictive union actions  under that Act.

In fact, since the Fair Work Act was introduced labour productivity has grown at a much slower rate than before and the more comprehensive measure – multifactor productivity – has actually fallen. Little wonder that OECD data shows that Australia’s real unit labour costs have over the same period also risen by more than 35 per cent relative to other countries.

This confirms that, contrary to Rudd’s claim that the Act “represents a reasonable balance for the future”, it needs to be scrapped.

Des Moore is the Director of the Institute for Private Enterprise, and a member of the HR Nicholls Society Board of Management

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