Transcript Perspectives on Productivity

Productivity level:
how far can Australia catch up?
Graeme Davis
23 March 2006
Productivity matters
2.5
Per cent
annual growth in GDP per person
Per cent
2.5
contribution of productivity
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
contribution of labour utilisation
-0.5
-0.5
1970s
1980s
1990s
2000s
The Treasury
Outline
Catch up
The Australia-US productivity gap
Recent and future trends
The Treasury
Catching up: different possibilities
Identical countries:
everyone catches up to the same level
Not very likely
No catch up: AK model, agglomeration Not tractable
Level gap: countries catch up to
their own steady states
then grow by the same rate
Tractable,
but is it likely?
The Treasury
Australia’s productivity level relative
to the United States
90
Per cent
Per cent
85
90
85
80
Average 1990-2005
Average 1975-1989
75
80
75
Average 1965-1974
70
1965
1970
1975
1980
1985
1990
1995
2000
70
2005
The Treasury
Scope for further catch up
Observe
y Aus
yUS
Guess
y * Aus
y *US
The Treasury
Explaining the productivity gap(1)
Decomposing the productivity gap with the US, 2002
10
Percentage points
Percentage points
10
Due to differences in physical capital per worker
0
0
-10
-10
-20
-20
-30
-30
Due to multi-factor productivity
-40
-40
New Zealand
Japan
Australia
Canada
United Kingdom
France
The Treasury
Explaining the productivity gap(2)
At least upper secondary attainment by cohort, 2003
100
Per cent
Per cent
Australia
100
United States
90
90
80
80
70
70
60
60
50
50
40
40
1940s (55-64)
1950s (45-54)
1960s (35-44)
1970s (25-34)
The Treasury
Explaining the productivity gap(3)
Policy
Employment Protection Legislation
4
France
3
2
Poland
Australia
1
United Kingdom
United States
0
0
1
2
3
4
Product Market Regulation
The Treasury
Stock take
Capital
Half the gap
Policy
Context
Substantial, but how much?
The rest: catch up????
The Treasury
Productivity growth: international comparison
5.0
Per cent
Per cent
5.0
4.5
4.5
4.0
4.0
Rest of the OECD
3.5
3.5
United States
3.0
3.0
Australia
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
1950-74
1974-85
1985-89
1989-94
1994-99
1999-2004
The Treasury
Why did the gap narrow in the 1990s?
Reforms?
y* Aus 
y*US
New economy?
The Treasury
Productivity growth in…
…wholesale trade
…retail trade
10
Per cent
Per cent
9
10
10
9
9
Per cent
Per cent
10
9
Australia
8
8
8
8
7
7
7
7
6
6
6
5
5
5
5
4
4
4
4
3
3
3
3
2
2
2
2
1
1
1
1
0
0
0
0
Australia
United States
1996 1997 1998 1999 2000 2001 2002 2003 2004
United States
6
1996 1997 1998 1999 2000 2001 2002 2003 2004
The Treasury
Why did the gap narrow in the 1990s?
Reforms?
New economy?
y* Aus 
y*US
y* Aus  y*US
y* Aus
 * ???
y US
The Treasury
US productivity growth (1870-2005)
2.50
Per cent
Per cent
2.25
2.50
2.25
Average
1870-2005
2.00
2.00
1.75
1.75
Average
1975-2005
1.50
1.50
1.25
1.25
1.00
1.00
1870-1913
1913-1929
1929-1950
1950-1975
1975-1995
1995-2005
The Treasury
Annualised US productivity growth
(years to 2005)
2.75
Per cent
Per cent
2.75
2.50
2.50
2.25
2.25
2.00
2.00
1.75
1.75
30 year average
1.50
1.50
2
6
10
14
18
22
26
30
34
38
42
45
The Treasury
How far can Australia catch up?
US grows by 1.6%pa
5ppt by 2040s
Australia grows by 1.75%pa
or no catch up, or the gap widens,
or the gap narrows by more than 5ppt
Policy implications
The Treasury