Yesterday’s June quarter national accounts data from the Australian Bureau of Statistics (ABS) certainly got the galahs squawking about their favourite topic, the “productivity crisis”.
It was “essential that federal and state governments prioritise a focus on improving our flagging productivity to boost our economic performance,” said AIGroup’s Innes Willox. “We are at serious risk of sleepwalking into long-term economic decline,” Business Council chief executive Jennifer Westacott said (notice Westacott has had precisely zero to say about the scandals at one of her most important members, Qantas). And chief galah at the Fin Review petshop, John Kehoe, fretted about the “concerning trend in the national accounts … abysmal labour productivity”.
All three used the figures to attack the government’s industrial relations reforms.
So what really happened to productivity in the June quarter? The overall economy grew 0.4%, GDP per hour worked fell 2%, and real unit labour costs rose 3.2%. Cue squawking.
But on a separate note, the ABS also pointed out that Australians worked more hours in the June quarter and over the year.
We spent 2.4% more time at work than we did last quarter, which, excluding the COVID-19 pandemic, was the fastest quarterly increase in hours worked on record. We worked 6.8% more hours this year than last year, and with GDP rising by a smaller amount, labour productivity fell 3.2% in annual terms.
Think about that (because Willox, Westacott and the AFR won’t). Australians actually spent more time away from their families and friends, away from doing what they enjoy, at work — substantially more. And yet labour productivity fell.
That tells you at least as much about the operation of indicators like GDP per hour worked as it does about whether Australia’s productivity problems begin and end with lazy workers, as the business lobby and the AFR seem to think. If Australians spend longer at work but GDP fails to grow rapidly because of our terms of trade (which fell in the quarter), or public spending is cut back, or households slash their spending (the household savings ratio hit another low in this cycle in the June quarter), or inventories decline, then GDP per hour worked must inevitably fall, giving us the “productivity crisis”. And in June it was inventories that, according to the ABS, “[were] the predominant detractor from GDP growth”. Without that 1.1% detraction, the overall GDP number, and thus GDP per hour worked, would have been significantly higher.
This is also what happens when the economy slows — GDP growth declines, but firms hang on to workers rather than immediately let them go, meaning GDP per hour worked will tend to fall. And that’s all the more the case given employers continue to face tight labour markets and, in many industries, worker shortages. They’re not about to sack staff it took them a lot of time and money to find.
There’s a lot more going on in productivity than just this (Alan Kohler’s observation that labour productivity has declined because workers have had a gutful of being mistreated by business remains the most trenchant and original insight of this iteration of the “productivity crisis” debate), but it shows how the usual suspects eager to push the usual agendas will seize on any data point to justify their stance.
Another productivity hysteric is Reserve Bank governor Philip Lowe, who had his last board meeting on Monday and Tuesday. And he couldn’t leave without one more attack on greedy workers wanting pay rises, saying on Tuesday: “Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.”
What’s sad about Lowe’s tenure is that, prior to the pandemic, he demonstrated a genuine capacity to think beyond the economic textbooks he learnt from, and tried to elevate wage stagnation to the status of a major economic problem for Australia, calling for business to give higher pay rises and for governments to abandon public sector wage caps.
But when the post-pandemic/Putin inflation surge came along, he reverted to type instantly, and workers became the central problem of the economy — they had to be made to suffer real wage cuts along with higher mortgages to combat an inflation problem that was, in truth, driven purely by external factors and by profiteering by corporations.
Of course, Lowe insisted there was no profiteering outside the energy industry, ignoring evidence from major economic institutions around the world that profits were playing a major role in inflation and, according to the OECD, the bulk of the role in Australian inflation. Lowe was trapped in his textbooks, which — written in the neoliberal orthodoxy of the 1980s and 1990s — identified demand as the key driver of inflation.
Like many other economists, Lowe failed to understand that 40 years of neoliberal reforms had delivered Western economies highly concentrated, uncompetitive markets dominated by large corporations, with much greater power to dictate prices and wages. They exploited that power in relation to wages for years before the pandemic (as the RBA itself found, even if Lowe didn’t read it) — and the moment that post-pandemic supply chain inflation gave them cover, they exploited it on prices.
They’re still doing it now, as Qantas demonstrates. We know from such fire-breathing left-wing institutions as the International Monetary Fund that market concentration is the enemy of investment and innovation. It’s the biggest problem in the Australian economy — the biggest problem for productivity, for investment, for economic growth, for inflation, for wages. But that’s all outside Lowe’s mental map of the world — and for a lot of other people as well.
