Working harder to expose the lies behind the ‘productivity debate’

Talk about inconvenient truths. The Productivity Commission’s latest “productivity bulletin” released overnight strangely prompted no comment from major employer groups, which are usually champing at the bit to talk about poor productivity and the urgent need for “reform”. And the coverage in the business press was strangely muted.

For a report showing a big fall in productivity — 2% in the June quarter and 3.2% in the year — where were the lamentations of woe and the calls for tax cuts, fewer industrial relations protections and deregulation?

For a start there was the complication that it also showed Australian workers working longer hours than ever before. The record number of hours worked was “predominantly a result of employed workers working longer hours rather than an influx of new entrants”. So much the business narrative — see property bro Tim Gurner and regular business whingers about working from home — that lazy workers aren’t putting in the effort.

But why had productivity fallen? Because output only increased by 0.4% when hours worked increased by 2.4%.

Why had output grown so slowly? For that you have to look at individual industries, and most especially mining. Mining isn’t a big employer, but because its productivity is so high, changes in productivity in mining have a disproportionate impact on economy-wide productivity.

What happened in mining? Over to the PC:

The mining industry alone made up around one-third of the total labour productivity decline. Although hours worked increased, there was a large decline in mining output — and associated with that, a large decline in labour productivity. The decline in mining output was mainly driven by a decrease in iron ore mining and oil and gas extraction, as adverse weather and planned maintenance reduced production capacity.

Wait — so it was weather and management decisions about maintenance that led to reduced productivity, not restrictive industrial relations laws or company tax rates? It was nothing to do with lazy miners, or Labor’s proposed laws for equal pay for equal work?

What about other industries? “[T]he wholesale trade industry had a small increase in labour productivity in the 2023 June quarter, but had the second-largest fall in labour productivity throughout 2022-23, averaging a 2.5% decrease over the past four quarters,” the PC reported. Sounds serious. Time for some deregulation? Erm, no: “This decline was due to an increased number of hours worked, accompanied by stagnating output growth because of weakening retail demand for some goods.”

So all those interest rate rises championed by The Australian Financial Review led to weaker demand and thus to productivity falls. Be careful what you wish for, eh?

It points to a broader truth that is ignored by the self-interested participants in the debate over our “productivity crisis”: many of the most important factors have nothing to do with what business claims are the biggest problems in productivity.

Weather, for instance, plays a huge role in productivity — not merely in mining but in another key export sector, agriculture, as we’re likely to see going into an El Niño that will hurt output from that sector (not forgetting that the climate crisis will inflict ever more extreme weather on us). A slowing in growth across the economy — unless employers start sacking workers en masse immediately — will mathematically lead to lower productivity, as we’re seeing now. And management decisions around use of capital will always play a direct role.

Not that any of this will stop most of the participants in the “productivity debate” from continuing to engage in bad faith. For them, it’s always lazy, overpaid workers and too much company tax.