Michael Knox’s Economic Strategy: “Problems in Productivity” Thanks RBS Morgan

Two RBA economists, Patrick D’Arcy and Linus Gustafsson have published an analysis of Australian productivity growth (Reserve Bank Bulletin, June Quarter edition 2012). They tell us that growth in productivity is the key driver of growth in per capita income and living standards in the long term. Productivity growth is determined by the development of new technologies and how efficiently labour capital and fixed resources, such as land, are organised in the production process.

Trend productivity growth is an important determinant of the pace at which the economy can grow over the medium term without generating inflationary pressure. During the 1990’s and early 2000’s, Australia experienced unusually rapid productivity growth. Trend productivity growth then slowed down over the latter part of the 2000’s. Weaker productivity outcomes have been especially pronounced in the mining and utilities industries where the level of productivity has actually fallen. There has also been a marked slowdown in trend productivity growth across most other industries.

The authors discuss several measures of productivity. Labour productivity measures output produced per hours worked. Multifactor productivity measures output for a given amount of both labour and capital.

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