The Economist opines:

For economists, the debate about whether technology or globalisation is responsible for capital’s rewards outpacing those of labour is crucial, complicated and unresolved. One school, which blames globalisation, argues that the rocketing profits and sluggish middling wages of the past few years are the long-lasting results of trade, as all those new developing-country workers enter the labour market. This school says that technology helps workers by increasing their productivity and eventually their wages. The opposing school retorts that technology does not increase wages immediately, and some sorts of information technology seem to boost the returns to capital instead.

Australia’s Productivity Commission has been looking at the apparent slowdown of Australian productivity so far in the 21st century.

The best overview Henry could find was in a paper by two Treasury officials, Graeme Davis and Jyoti Rahman, titled “Perspectives on Australian’s Productivity Prospects” and released as part of a Productivity Commission conference on Australia’s productivity performance and prospects.

Australia follows the “frontier” established (or proxied) by US developments but has the opportunity more quickly to “close the gap” of 20 to 25% with the US frontier.

US productivity has for long periods grown at 2-2.5%, but in the long period from 1975 to 1995 average productivity growth was only 1.6%. Naturally this aberration horribly complicates the tasks both of analysis and projection.

In the recent past, of course, Australian employment has grown rapidly while overall production, as measured by Gross National Product (GNP) has grown slowly, implying a big productivity slowdown. This graphic certainly does not bode well for Australian productivity.

There is a puzzle wrapped inside an enigma here, gentle readers. Henry cannot help wondering how many of the new jobs, including those with low productivity (thus helping to explain Australia’s apparent productivity paradox), are due to the new IR legislation.

This of course makes it far easier to sack unproductive workers, which has given previously unemployable people a chance at a job. And many of those previously unemployable people, as well as those in jobs, knowing their tenure is more at risk, are inclined to keep their noses to the grindstone without being too fussy about demanding a larger share of the pie.

Maybe the IR reforms will leave Australia for a time with a lower productivity, lower wage growth economy. Henry welcomes feedback on all this.

Read more at Henry Thornton.

Peter Fray

Get your first 12 weeks of Crikey for $12.

Without subscribers, Crikey can’t do what it does. Fortunately, our support base is growing.

Every day, Crikey aims to bring new and challenging insights into politics, business, national affairs, media and society. We lift up the rocks that other news media largely ignore. Without your support, more of those rocks – and the secrets beneath them — will remain lodged in the dirt.

Join today and get your first 12 weeks of Crikey for just $12.

 

Peter Fray
Editor-in-chief of Crikey

JOIN NOW