Australian productivity not so bad: report

A new report has found Australia's productivity problems are not as bad as widely thought, and are largely due to one-off factors.

Australians have been repeatedly warned by the nation's economic policymakers that incomes will start falling with commodity prices unless productivity improves.

However, a report commissioned by the McKell Institute think tank has concluded that Australia's productivity performance is not as bad as economic policymakers have led the nation to believe.

The dean of the University of Technology Sydney's business school, Professor Roy Green, co-authored the report and says much of the decline was due to unavoidable or one-off factors.

"About 80 per cent of the productivity growth decline since the 1990s can be accounted for by temporary and industry specific factors," he observed.

Those factors include huge mining investments that are yet to result in production; over-investment in utilities, such as desalination plants that have hardly been used; and droughts that have cut agricultural output.

Professor Green says the official measures of productivity do not take account of such one-off factors.

"It's output per unit of input, whether it's labour, capital or a combination of those things," he said.

"Where it gets difficult is in how to measure those different factors." The report, entitled Understanding Productivity - Australia's Choice, highlights the often misunderstood relationship between costs and productivity.

Professor Green says cost cutting does not automatically improve productivity over the long-term.

"That doesn't necessarily produce long-term dynamic gains for the economy, it produces a one-off change," he said.

For example, Professor Green points to one-off gains in the productivity of utilities during the 1990s that have since been unwound because they were based on a lack of investment that has since had to be made up.

Industrial relations debate Despite the limitations of productivity measures, Professor Green says Australia should try to lift its performance.

He says it is Australia's managers, not its workers, whose skills and performance are lagging behind other developed nations.

"Managers need to know how to engage successfully with their workforces," he said.

"It isn't just a matter of industrial relations law.

That has an important role as a framework but the key is the ability of management to take workforces with them." However, the Australian Chamber of Commerce and Industry's director of economics Greg Evans says that distracts attention from government's role in improving productivity.

He says the message from Australian businesses is clear.

"Both taxation policy and industrial relations flexibility, these are the key issues that our membership consistently reports back has been a drag on the capacity of their businesses to be more profitable and productive," he responded.

However, Professor Green says business anecdotes are the only real evidence of industrial relations reform having a significant effect on productivity.

"At a statistical level, we could not find any compelling evidence for industrial relations reform having an impact on productivity growth," he observed.

On the contrary, he says industrial relations changes that reduce penalty rates and encourage businesses to make staff work more hours could reduce productivity, because more labour would offset the higher output of goods or services.

"By increasing the time that people spend at work you're actually counteracting what could otherwise be beneficial productivity effects," he added.

Professor Green says a much larger potential source of productivity gains would be making better use of workers' existing skills.

"We can pump out qualified graduates, both in our TAFE system and in universities, but if those skills are not being made good use of in the workplace then that represents a drain on productivity, not added value," he argued.

Another key source of improved productivity identified by the report is technology and innovation.

The Asia Pacific vice-president for global technology giant CISCO, Les Williamson, sees the adoption of social media within companies for better communication as the next big source of productivity gains.

"Being able to mix video and voice, text, collating those, connecting them with subject matter experts, coupling that with the immediacy of social media type capabilities but making them enterprise grade - that's the future of connection," he said.

This week happens to be the Federal Government's national Telework Week, which is promoting the productivity benefits of working remotely.

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