Transcript 2011Saul-Eslake

Productivity and Education
Presentation to the
Victorian Association of State Secondary Principals
and Victorian Principals’ Association
2011 Conference
Crown Conference Centre
1st August 2011
Saul Eslake
Program Director, Productivity Growth - Grattan Institute
What is ‘productivity’?
 ‘Productivity’ is a measure of how effectively or efficiently a workplace,
a business or government agency, a region or a nation as a whole uses
the resources at its disposal to produce goods and services which are
in turn valued, in some way, by those who consume or use them
 For individual enterprises, ‘productivity’ may refer to a measure of
production or output per unit of some specific input
–
–
–
–
–
eg litres of milk per cow or tonnes of grain per hectare
ounces of gold per tonne of ore extracted
motor vehicles produced per worker per day
‘weighted inlier equivalent separations’ per occupied bed day (in hospitals)
incoming calls answered per hour (in a call centre)
 For an entire economy, ‘productivity’ is measured as
– output (gross product or value added) per unit of labour input (usually
hours worked) – labour productivity
– or output per unit of labour and capital services input – ‘multi-factor’
productivity
Why does productivity matter?
‘Productivity … isn’t everything, but in the long run it’s
nearly everything’
- Paul Krugman, The Age of Diminished Expectations (1994)
‘Productivity is the prime determinant in the long run of a
nation’s standard of living, for it is the root cause of per
capita national income. High productivity not only supports
high levels of income but allows citizens the option of
choosing more leisure instead of longer working hours. It
also creates the national income that is taxed to pay for
public services which again boosts the standard of living.
The capacity to be highly productive also allows a nation’s
firms to meet stringent social standards which improve the
standard of living, such as in health and safety, equal
opportunity and environmental impact’
- Michael E Porter, The Competitive Advantage of Nations (1991)3
Senior Australian policy-makers see it the same way
‘[productivity] … is the only real basis for optimism about
future income’
- RBA Governor Glenn Stevens, July 2009
‘there is only one source of ongoing higher rates of growth
of real per capita incomes, and that is higher rates of
growth of productivity’
- RBA Governor Glenn Stevens, July 2011
‘in the long run, productivity growth – producing more from
the same inputs – is the only sustainable way for future
generations to enjoy higher living standards’
- Treasury Secretary Martin Parkinson, July 2011
4
Productivity is one of the “three P’s” of long-run
economic growth
GDP
Population
=
x
Labour force
Population
x
Employment
Labour force
x
Hours worked
Employment
x
GDP
Hours worked
( labour force
participation rate )
(1–
unemployment
rate )
( average hours
worked )
( labour
productivity )
5
Productivity isn’t everything …
 Productivity is measured, at the aggregate level, as gross value added
or GDP per unit of factor input(s)
– and we know that GDP – or even GDP per capita – are incomplete and
inadequate measures of ‘well-being’
 Pursuit of other appropriate or desirable objectives may detract from
measured productivity growth
– for example, promoting greater labour force participation by people with low
skills or who have been marginalized or excluded from the labour force
 There may be a conflict between productivity and ‘allocative efficiency’
– that is, shifting resources into ‘high productivity’ sectors like mining or
finance may lift measured productivity but fail to satisfy patterns of demand
.. But productivity growth can play a vital role in
confronting some of Australia’s medium-term challenges
 Demographic change
– which will detract from economic growth through slower population
growth, lower levels of labour force participation and lower average hours
worked
 Helping non-resource trade-exposed industries survive the ‘resources
boom’
– in particular those affected by a strong dollar (manufacturing, agriculture,
tourism, higher education) and higher interest rates (construction, retailing)
 Reconciling the looming conflict between environmental constraints on
resource depletion and ongoing human aspirations for rising standards
of living over time
– strong ‘multi-factor’ productivity growth offers the possibility of continued
growth in per capita GDP with less intensive (and possibly even zero growth
in) environmental resources
Australia’s labour productivity growth rate has slumped
over the past decade ….
Labour productivity growth
% pa (5-year rolling averages)
‘Selected sectors’
‘Market’
sector
Whole economy
Note: ‘Selected sectors’ are agriculture, forestry & fishing; mining; manufacturing; electricity, gas, water & waste services; construction;
wholesale trade; retail trade; accommodation & food services; transport, postal & warehousing; information, media & telecommunications;
financial & insurance services; and arts & recreation services. ‘Market sector’ comprises these sectors plus rental, hiring & real estate
services; professional, scientific & technical services; administrative & support services; and other services. Data are for financial years
8
ended 30 June. Sources: ABS; Grattan Institute.
… despite a substantial increase in the amount of capital
available to each worker, on average …
Capital-labour ratio
2008-09 = 100
‘Selected sectors’
‘Market’ sector
Note: ‘market sector’ and ‘selected sectors’ are as defined for previous chart. Data are for financial years ended 30 June. Sources: ABS;
Grattan Institute.
… implying that the slowdown in ‘multi-factor’
productivity growth has been even more pronounced
‘Multi-factor’ productivity growth
% pa (5-year rolling
averages)
‘Selected
sectors’
‘Market’
sector
Note: ‘Selected sectors’ are agriculture, forestry & fishing; mining; manufacturing; electricity, gas, water & waste services; construction;
wholesale trade; retail trade; accommodation & food services; transport, postal & warehousing; information, media & telecommunications;
financial & insurance services; and arts & recreation services. ‘Market sector’ comprises these sectors plus rental, hiring & real estate
services; professional, scientific & technical services; administrative & support services; and other services. Data are for financial years
10
ended 30 June. Sources: ABS; Grattan Institute.
Productivity growth has slowed in most OECD countries,
but not by as much as in Australia
Labour productivity
% pa (5-year rolling averages)
Multi-factor productivity
% pa (5-year rolling averages)
Australia
OECD
OECD
Note: OECD labour inputs measured as persons employed (as opposed to hours worked).
Sources: ABS; OECD; The Conference Board.
Australia
11
Relative to the US, Australian labour productivity is now
lower than it was in the late 1980s and early 1990s
Australian labour productivity as a percentage of the US
92
%
91
90
89
88
87
86
85
84
80
85
90
95
00
05
10
Sources: The Conference Board Total Economy Database, January 2011, www.conference-board.org/data/economydatabase/;
Grattan Institute.
12
Faster population growth has largely offset the impact of
slower productivity growth on overall economic growth
Sources of real GDP growth (1989-90 to 2009-10)
Sources: ABS, Grattan Institute.
P 13
… while the huge gains in Australia’s terms of trade have
produced an acceleration in domestic income growth
Sources of real GDI growth (1989-90 to 2009-10)
Note: ‘GDI’ (gross domestic income) is GDP adjusted for changes in the terms of trade.
Sources: ABS, Grattan Institute.
P 14
Perverse trends in mining sector productivity have
detracted from Australia’s overall performance …
Mining sector
factor inputs and outputs
Index (2008-09 = 100)
Mining sector
productivity
Index (2008-09 = 100)
Output
Multifactor
Labour
Capital
Labour
Source: ABS
15
… as have similar developments in the electricity, gas,
water and waste services (utilities) sector
Utilities sector
factor inputs and outputs
Index (2008-09 = 100)
Utilities sector
productivity
Index (2008-09 = 100)
Labour
Capital
Multifactor
Output
Labour
Source: ABS
16
But mining and utilities account for less than 12½% of
gross value added, and less than 15% of ‘market’ GVA
Shares of total gross
value added, 2009-10
Dwelling Mining
ownership
'Non-market'
sectors
Other 'market sectors'
Source: ABS
Utilities
Shares of ‘market sector’ gross
value added, 2009-10
Utilities
Mining
Other 'market sectors'
17
ABS national accounts & hours worked data can be used
to construct ‘additive’ measures of labour productivity
Estimates of the dollar value of output per hour worked, 2009-10
Note: Aggregate hours worked for each sector derived by ‘grossing up’ estimates of average hours worked in the survey week
for the middle month of each quarter. ‘Output’ is gross value added. Sources: ABS); Grattan Institute.
18
These estimates produce quite similar estimates of
aggregate productivity growth to those compiled by ABS
Estimates of market sector labour productivity compared
2008-09 = 100
2008-09 chain volume $ per hour
Grattan measure of gross
value added in industry per
hour worked
(right scale)
ABS index measure
(left scale)
Note: left and right scales are equi-proportional.
Sources: ABS; Grattan Institute calculations.
19
Declines in mining & utilities sector productivity account
for less than 10% of the drop in the overall growth rate
‘Market sector’ (10 industries)
Excl.
mining
and
utilities
% pa (5-year rolling average)
‘Market
sector’
‘Selected sectors’ (14 industries)
% pa (5-year rolling average)
Excl. mining
and utilities
‘Selected
sectors’
Sources: ABS; Grattan Institute calculations.
20
What else could explain the general slowdown in labour
productivity growth over the past decade?
 As the Australian economy moved closer to ‘full employment’ additional labour
and capital inputs are likely to have been increasingly less productive
 Capacity constraints – shortages of skilled labour, infrastructure bottlenecks
etc. – resulted in increasing amounts of ‘down time’ detracting from productivity
 Generally buoyant corporate profitability may have diminished the importance
to management of seeking out productivity improvements
– according to a survey by Telstra, while 76% of large organizations regard improving
productivity as ‘an important business priority’, only 24% have actually achieved
significant productivity improvement over the last 12 months
 Dearth of productivity-enhancing ‘micro-economic’ reforms since around 2000
– most of the ‘low hanging fruit’ have been picked
– and in the absence of any sense of ‘economic crisis’ there has been no political
imperative for productivity-enhancing reform
 Instead there’s been an increase in regulation motivated by an apparent desire
to eliminate risk irrespective of probability or cost
– for example, airport security, corporate governance, access to children, speed limits
 There’s been some slowing in the rate of diffusion of productivity-enhancing
technologies since the late 1990s
– and Australia doesn’t rank as highly on these measures as it did at that time
21
Australia’s ‘innovation ranking’ (as measured by the
World Economic Forum) has fallen
Australia’s World Economic Forum Innovation Index ranking
Global Competitiveness
Index: Innovation Pillar
(12)
Growth Competitiveness
Index: Innovation Subindex
Source: World Economic Forum, Global Competitiveness Reports
Australia now typically ranks between 15th and 22nd in
terms of innovation and take-up of new technologies
Global Comp.
Report –
Innovation
Global
Innovation
Index
Top
Ranking
Countries:
1. USA
2. Switzerland
3. Finland
4. Japan
5. Sweden
6. Israel
7. Taiwan, China
8. Germany
9. Singapore
10. Denmark
11. Canada
12. Korea, Rep.
13. Netherlands
14. UK
15. Belgium
16. Luxembourg
17. Iceland
18. Norway
19. France
20. Austria
21. Australia
22. Ireland
1. Iceland
2. Sweden
3. Hong Kong
4. Switzerland
5. Denmark
6. Finland
7. Singapore
8. Netherlands
9. New Zealand
10. Norway
11. USA
12. Canada
13. Japan
14. UK
15. Luxembourg
16. Germany
17. Belgium
18. Australia
19. Ireland
20. Korea, Rep.
21. Austria
22. France
1. Singapore
2. Sweden
3. Luxembourg
4. Denmark
5. South Korea
6. USA
7. Finland
8. UK
9. Japan
10. Netherlands
11. France
12. Ireland
13. Belgium
14. Germany
15. Canada
16. Austria
17. Australia
18. Czech Rep.
19. Estonia
20. Spain
21. Hungary
22. Lithuania
1. Singapore
2. South Korea
3. Switzerland
4. Iceland
5. Ireland
6. Hong Kong
7. Finland
8. USA
9. Japan
10. Sweden
11. Denmark
12. Netherlands
13. Luxembourg
14. Canada
15. UK
16. Israel
17. Austria
18. Norway
19. Germany
20. France
21. Malaysia
22. Australia
1. Japan
2. Switzerland
3. USA
4. Sweden
5. Finland
6. Germany
7. Denmark
8. Taiwan
9. Netherlands
10. Israel
11. Austria
12. France
13. Canada
14. Belgium
15. South Korea
16. Norway
17. Singapore
18. UK
19. Ireland
20. Italy
21. Australia
22. New Zealand
1. Switzerland
2. Ireland
3. USA
4. Japan
5. Sweden
6. Germany
7. UK
8. Netherlands
9. Finland
10. France
11. Denmark
12. Belgium
13. Austria
14. Canada
15. Australia
16. Italy
17. Norway
Year:
2010-11
2009-10
2009
2009
2007
2010
Author:
World Economic
Forum
INSEAD
ITIF
Boston Consulting
Group
Economist
Intelligence Unit
Canada
Conference Board
Countries:
139
132
40
110
82
17
Sources: INSEAD, Global Innovation Index 2007 and 2009-10.
Benchmarking
EU & US
Innovation
The Innovation
Imperative in
Manufacturing
EIU Report
How Canada
Performs Innovation
Education can make an important contribution to lifting
productivity growth – although it’s not clear that it has
 In principle, education should make a substantial contribution to improving
productivity performance
– by increasing the skills and abilities of individual workers
– by raising the flexibility of workplace teams
– by allowing for the more rapid utilization and transmission of new skills and
production technologies, and
– by fostering the creation of knowledge, ideas and technological innovation
 International research suggests a positive association between educational
attainment and economic growth
– OECD research suggests each additional year of schooling in the adult population
boosts long-run economic growth by between ¼ and ¾ percentage points per annum,
or by anywhere between 6 and 19% in total
 However, research has struggled to identify any meaningful link between higher
levels of educational attainment and the improvement in Australia’s productivity
performance during the 1990s
– ‘there appears to have been no significant acceleration in workforce skills in the
1990s’ − Gary Banks, Productivity Commission Chairman (2003)
– ‘skill upgrading has played, at best, a modest role in GDP growth per employed
person in … Australia’ − OECD ‘Sources of Economic Growth’ (2002)
24
There’s no question that formal levels of educational
attainment among the Australian population have risen …
Measures of Australian educational attainment
39
%
%
% of 25-64 year olds with
bachelor's degree or higher
(right scale)
% of 15-64 year olds
who haven't completed
Year 12 (left scale)
38
37
28
26
24
36
22
35
20
34
18
33
16
32
14
31
12
30
10
90
91
92
93
94
95
96
97
98
Source: ABS Social Trends and Education and Work.
99
00
01
02
03
04
05
06
07
08
09
25
… and resources available for school education, in
particular, have increased
Staff-student ratios, secondary schools
13.0
%
12.8
12.6
Government
12.4
All schools
12.2
12.0
11.8
11.6
Non-government
11.4
90
91
92
93
94
95
96
97
98
99
00
01
Source: ABS Social Trends. Series for all schools includes non-teaching staff.
02
03
04
05
06
07
08
09
26
More recent research suggests that the quality of
education is more important than the quantity of it
Years of education vs
economic growth
Test scores vs
economic growth
‘one standard deviation in test scores … is associated with a two percentage points
higher average annual growth rate in GDP per capita across 40 years’
Source: Eric Hanushek & Ludger Wößman, ‘The Role of Education Quality in Economic Growth’, World Bank Policy Research
Paper 4122 (2007); The World Bank, Education Quality and Economic Growth (2007).
27
Latest results from the OECD’s Program for International
Student Assessment (PISA) reveal challenges for Australia
 Average scores of Australian students in reading literacy and mathematical
literacy have declined significantly over the past few years
 There are some large ‘gender gaps’ in reading and mathematics
– in reading literacy, females achieve at a much higher level than males
– in mathematics, with males outperforming females
 Students in remote locations have an average score in reading literacy almost
two years of schooling lower than that of students in metropolitan schools
 Despite the better than average scores, significant levels of educational
disadvantage related to socioeconomic background exist in Australia
– the performance gap between students of the same age from different backgrounds
can be equivalent to up to three years of schooling
– this gap places an unacceptable proportion of 15-year-old students at serious risk of
not achieving levels sufficient for them to effectively participate in the 21st century
workforce and to contribute to Australia as productive citizens
 ‘Australia’s high SES students on average achieve outstandingly good
outcomes by international standards, whereas the outcomes are comparatively
mediocre for low SES students’
– Peter Dawkins (former Secretary of Victorian Education Department , 2010)
28
Australia was the only ‘high performing’ country to show a
significant decline in reading literacy between PISA 2000 & 2009
Mean reading literacy scores, PISA 2000 and PISA 2009
600
% per annum
550
PISA 2000
PISA 2009
500
450
400
350
USA
Switzerland
Sweden
Spain
Russia
Portugal
Poland
Norway
NZ
Mexico
Liech'stn
Latvia
Korea
Japan
Italy
Israel
Ireland
Iceland
Hungary
Hong Kong
Greece
Germany
France
Finland
Denmark
Czech Rep.
Chile
Canada
Bulgaria
Brazil
Belgium
Australia
Source: Thomson et al, Challenges for Australian Education: Results from PISA 2009, ACER.
29
Mathematical literacy of Australian students declined
significantly between PISA 2003 and 2009
Mean mathematical literacy scores, PISA 2003 and PISA 2009
600
% per annum
550
PISA 2003
PISA 2009
500
450
400
350
Uruguay
USA
Turkey
Thailand
Switzerland
Sweden
Spain
Slovakia
Serbia
Russia
Portugal
Poland
Norway
NZ
Netherlands
Mexico
Macao
Luxembourg
Liechtenstei
Latvia
Korea
Japan
Italy
Ireland
Iceland
Hungary
Hong Kong
Greece
Germany
France
Finland
Denmark
Czech Rep
Canada
Belgium
Australia
Source: Thomson et al, Challenges for Australian Education: Results from PISA 2009, ACER.
30
Australian students’ scientific literacy was unchanged
between 2006 and 2009
Mean reading literacy scores, PISA 2006 and PISA 2009
550
PISA 2006
PISA 2009
% per annum
600
500
450
400
350
Uruguay
USA
UK
Turkey
Thailand
Switzerland
Sweden
Spain
Slovenia
Slovakia
Serbia
Russia
Romania
Portugal
Poland
Norway
NZ
Netherlands
Mexico
Macao
Luxembour
Lithuania
Liechtenste
Latvia
Korea
Japan
Italy
Israel
Ireland
Iceland
Hungary
Hong Kong
Greece
Germany
France
Finland
Estonia
Denmark
Czech Rep
Croatia
Taiwan
Chile
Canada
Bulgaria
Belgium
Australia
Source: Thomson et al, Challenges for Australian Education: Results from PISA 2009, ACER.
31
What could be done to improve Australia’s productivity
performance?
 Re-invigorated commitment to productivity-enhancing reforms
– some sectors have previously been exempted from such reforms (health insurance,
international aviation, agricultural marketing, pharmacies, newsagencies,
professional services; and hospitals, schools, public transport and policing)
– and achieving real progress in COAG regulatory reform agenda
 Taxation reform
– with a view to reducing the extent to which provisions in the tax system distort
decision-making
 Further promotion of education and skills acquisition
– focussing in particular on engineering and science, skilled trades etc
– may require significant reform of vocational education system and funding
 Targeted infrastructure investment
– need mechanisms to ensure the ‘right infrastructure in the right places’ with sensible
pricing and access
 Serious effort to improve Australia’s innovation effort
– not simply about R&D spending but about access to risk finance, linkages with
research institutions, relevant skills and commercialization
 Greater awareness of the productivity impact of policies pursued with other
objectives in mind
32