Productivity continues to be the panacea of economic debate in Australia. Everyone — the galahs of the Financial Review, the Reserve Bank, the opposition — insists productivity growth will fix what ails us, from weak wages growth, to inflation, to poor investment.
The latest is shadow spokesperson for being invisible Angus Taylor, who is peddling higher productivity as the magical solution to the problem now facing the Coalition on immigration.
That problem is, the more we cut immigration, the greater the workforce shortages Australia will face. And even though the opposition is not promising anything significantly different than Labor on immigration — though what the Coalition’s policy actually is depends what day of the week it is and who’s talking — it wants voters to think it’s taking a chainsaw to migration.
Peter Dutton and Taylor’s effort to square this circle is to insist workforce shortages will be fixed by higher productivity and greater participation. They talk confidently of luring more pensioners back into the workforce — the construction industry must be salivating at the prospect, along with safety regulators and lawyers — and, now, reversing Labor’s industrial relations reforms.
“The biggest bang for your buck is going to be labour productivity as it’s gone backward so much in the last two years,” said Taylor.
In fact, according to the Australian Bureau of Statistics, GDP per hour worked and gross value added per hour worked (the market section of the economy) rose in both the September and December quarters of 2023.
And according to the Productivity Commission’s most recent productivity bulletin:
the decrease in labour productivity in 2022-23 reversed gains observed at the start of the COVID-19 pandemic … Overall, labour productivity was 0.8% above its pre-pandemic average at the end of 2023-23, and 2.4% above its pre-pandemic average at the end of 2022-23 within the market sector. Looking beyond the 2022-23 annual data, the decline in labour productivity appears to have halted in the first quarter of the 2023-24 financial year …”
Fantastic. Great move. Well done, Angus.
That’s the problem with productivity crises — they can evaporate before your eyes. A “productivity crisis” was alleged to be blighting the economy when Labor was last in power (because of the new Fair Work Act), only for labour productivity to take off in 2011. Treasury in 2017 released a paper specifically noting that “despite concerns, Australia’s labour productivity growth over recent years is in line with its longer-term performance”.
From mid-2018, however, there really was a productivity crisis — quarterly labour productivity growth was zero or negative. Then treasurer Josh Frydenberg even admitted there was a problem. But the Coalition had form on productivity crises. PC data shows that before the 2018 “crisis”, the biggest collapse in productivity growth was under John Howard’s WorkChoices.
If you read that PC bulletin, you’ll get a clear idea of what has been driving changes in productivity lately: the huge rise in hours worked in the economy — the denominator in measures like GDP per hour worked — hasn’t been accompanied by a similar rise in the numerator of economic output. That’s why the halting of labour productivity declines in 2023 was “largely attributable to a fall in hours worked”.
So the easiest way to increase productivity is to reduce hours worked. Telstra’s sacking of 2,800 workers this week — though driven by profit, not productivity — was productivity growth in action. Needless to say, there aren’t too many productivity spruikers, even among the ranks of hardened neoliberals, who are game to cheer thousands of job cuts. Next week we will see similar high-profile action at News Corp Australia and Nine Entertainment as media companies engage in another round of slashing and burning.
But there are certain types of productivity gains to which Angus Taylor and his colleagues are highly averse. Australian agriculture has dramatically improved output and exports over the past 20 years. In the same period, the agricultural workforce has shrunk by 20% and the number of farms by 25%. That’s a mighty productivity achievement, but no-one ever mentions it because in reality it means smaller rural towns and more marginal regional economies.
As Taylor’s Nationals colleagues know, this means fewer rural voters to send them to Canberra. Last winter, the agriculture workforce shrank to 250,000, its lowest level ever recorded. That’s record productivity in action.
If we could replicate the workforce shrinkage in agriculture across the economy, Taylor might be able to address workforce shortages without migrants. He might even be able to do so without his putative army of pensioners.
