There have been some peculiar contributions to the “productivity debate”, but the one released today by the Australian Human Resources Institute takes some sort of cake of confusion.

AHRI, which produces a lot of quality publications on workplace issues, joined with the Society for Human Resource Management to hire the Economist Intelligence Unit to undertake a “a global assessment and benchmarking tool that would show the capacity of national economies to perform effectively and efficiently within workplaces that were fair, equitable and flexible places in which to work”.

The resulting report (or at least the summary of it) was dropped on those two journals of record on the productivity frontline, The Australian and The Australian Financial Review. And, you’ll never pick it, but both used the report as evidence that Australia is lagging behind in productivity and IR flexibility.

Now, you may recall the Economist Intelligence Unit from such reports as the ideological rant against the NBN that compared Australia to South Korea and was out by several million households and other basic factual errors, or its forecast of doom for Australian housing prices that was demolished by the National Housing Supply Council.

In this instance, the EIU has produced an outright weird report, so confusing that it’s entirely unclear exactly what they’re trying to measure. It combines three different areas — “policy and regulatory framework” for IR, “operating environment” and “economic performance”.

You’d think a category marked “economic performance” would be about economic performance, but it’s not. The top economic performer, according to the EIU, is Argentina, followed by Botswana, Uganda and Tanzania. Australia is 34th on the list, behind among others Italy, Ireland and Portugal. That outcome puzzled even News Ltd and Fairfax journalists, who noted it with an air of bemusement. It seems to have puzzled AHRI and SHRM too, because the report tries to explain why Germany lags below Italy and Ireland as well.

“… this is an opportune time to be reminded that each category ranking taken alone is based on raw numbers without the countervailing influence of other data such as qualitative and quantitative indicators of the cultural, institutional, legal, economic and political contexts that define each country.”

Paul Begley of AHRI kindly sent through the actual tool developed by the EIU to have a play with. Total factor productivity growth is one reason why Australia is so low — and we know multifactor productivity has significantly underperformed labour productivity in recent years. Another is elasticity of employment, which measures changes in employment as GDP changes. That accounts for why developing countries feature so prominently on the “economic performance” list.

Anyway, let us for a moment accept the EIU’s judgment that Australia’s economic performance is below that of most of the developed and developing world and look at the other categories. The IR category, in which Australia comes 19th, is a weird mixture of things: union participation is assumed to be a good thing, so Australia’s low level of union participation, at just over 20%, marks us down, especially compared to China, which has 100% union coverage, even though the report admits Chinese unions are government-controlled and therefore not really unions. Presumably the productivity hardliners at the Business Council don’t want our union participation to increase.

Our lack of mandatory breaks for hourly workers also apparently marks us down, as does our low level of mandatory redundancy requirements. On the other hand, we compare quite well on annual leave and hours worked per week. So, if we cut our working hours further, legislated for more breaks, made it more expensive to sack people and all joined unions, Australia would be up in the top 10 on this in no time.

The big reason we get marked down on “policy and regulatory framework” is because of our high manufacturing wages. Now, it’s only a few days since Judith Sloan was telling us not to get too hung up on productivity analysis based on international comparisons of manufacturing, but anyway. The EIU has helpfully used US dollars in its wages comparison, ensuring Australia doesn’t come off favourably at all compared to the rest of the world.

Conversely, Australia ranked highly on “operating environment” because of our strong educational system — apparently we expect our kids to be at school for 21 years, the highest in the world — and high workforce and education participation by women, low corruption and childcare services. Although, apparently, we’re not very open to global trade and competition, because on that we rank below the protectionists of Europe and Japan.

There’s some other peculiarities as well. There’s something called “trade as a percentage of GDP” which apparently is unrelated to trade as a percentage of GDP, because Australia’s score is “-0.5”. Although that’s OK because the Kiwis rated “-1.3”. Unless the lower the score, the better. It’s hard to tell in this report whether lower or higher is better.

Now, international economic comparisons are difficult and I don’t envy the EIU’s task. Getting comparable data is always hard. As someone who regularly goes digging for data overseas, I can vouch that most expeditions offshore leave one grateful for the quality of the ABS, despite its shortcomings.

But I defy even the most puritanical IR deregulista to find material in here that provides evidence for the pressing need for IR reform, however the business media want to spin it.

Peter Fray

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