This paper examines the sources of the decline in Australia’s productivity growth since the record highs of the 1990s, focusing on the last two complete productivity cycles (ending in 2007-08).
It offers a different perspective by looking for a general or macro-economic explanation and then tracing the origins to specific industries. It identifies quite specific and comprehensive industry contributions to the aggregate productivity growth slump.
At face value, Australia’s productivity growth would seem to have completely disappeared. After a record-high rate in the 1990s, growth in multifactor productivity (MFP) slumped in two steps of equal size, first to a more typical rate, and then to zero in the mid- to late-2000s (figure 1.1). In fact, according to the official ‘headline’ series published by the ABS, productivity actually went
The high productivity growth of the 1990s brought home two key messages. First, productivity growth matters as a source of prosperity for Australians. Second, the policy environment is important for fostering productivity growth. Specifically, the 1990s productivity surge is now widely seen as a dividend from economic reforms introduced over the 1980s and 1990s (Parham 2004).
It is perhaps not surprising then that there has been widespread concern about the subsequent slump in productivity growth and its relationship to reform momentum. Garnaut (2005), for example, bemoaned the ‘reform complacency’ that had set in and the lack of genuine reforms since the introduction of the GST in 2000.