Australians would enjoy an extra week away from work each year and boost the nation’s wealth by a quarter if productivity increased across the economy to the level of other rich countries, a Productivity Commission report has found.
But the commission also says little progress has been made since its 2017 report on how to boost the economic speed limit, while revealing the country is relying on a growing number of people in jobs working long hours to cover its financial shortcomings.
Australians would be richer and have more time to relax if productivity levels across the country were improved, the report shows.Credit:James Alcock
In an interim paper that suggests changes in areas ranging from improved use of data collated by private businesses to better education standards, the commission says without a productivity boost, the nation will struggle to remain as rich as it is now.
Economic policymakers here and overseas have grown increasingly concerned about a slowdown in productivity over recent years. While productivity growth had averaged 1.7 per cent a year since the 1960s, it has significantly declined since 2000.
Since 2010, annual productivity growth has slipped to 1.1 per cent. According to the commission, the slowdown over the past decade has cost gross national income per person about $4600.
Australia’s productivity level is now about 22 per cent lower than that of the United States.
But the commission found Australians had been shielded from the drop in productivity growth by working harder.
The proportion of the population working had lifted from 42 per cent in 1970 to 51 per cent now, largely due to the influx of women into the workforce.
While average hours worked had fallen by about 10 per cent, or four hours, over the same period, average hours worked in other rich nations had fallen even more. In some nations such as Norway and Denmark, hours worked have fallen by a quarter but their productivity has grown more than Australia’s.
The combination of more people working longer hours than in other countries meant GDP per capita had remained relatively high.
Increased productivity over the past 120 years has lifted Australians’ living conditions. In 1901, it took 185 working hours to afford a double bed and mattress compared to just 18 hours in 2019. In more recent years, the cost of smartphones has tumbled while their quality has soared.
According to the commission, finding ways to lift productivity would not only make Australians better off, but better rested.
If the country’s labour productivity level was the same as Belgium’s, Australians could reduce the amount of time spent at work by four hours a week without a fall in income.
According to the commission, this would deliver Australians a “leisure dividend” of one less day a week of work.
Productivity Commission chair Michael Brennan says finding ways to boost productivity will make Australians better off.Credit:Louie Douvis
If Australia had the same productivity levels as Belgium but people only marginally reduced their working week, they could get an extra hour a week of leisure while increasing GDP per capita by 25 per cent.
Commission chair Michael Brennan said the country had to look for new ways to drive productivity growth, including a review of the nation’s policy levers and industries into which resources should be concentrated.
“Productivity growth is essential to address the nation’s economic challenges, including rising cost-of-living pressures, but it is not guaranteed,” he said.
“Nowadays, improvements in service quality and the impact innovative new products and services have on people’s lives matter most.
“However, the overarching principle of productivity – that we aim to work smarter, not harder or longer – is as important as ever.”
Productivity traditionally describes the number of goods and services that can be generated from inputs such as machines and workers. It also covers the improvement in the quality of goods and services over time.
According to the commission, which in its 2017 Shifting the Dial report set out a range of proposals to boost productivity, little has changed over the past five years.
The 2017 report found changes in education and health, competition in the pharmacy sector, a price on carbon emissions, tax reform and vehicle user charges could deliver a $140 billion boost to the economy over 20 years.
“However, overall the dial has yet to be shifted by government,” its latest report found.
The commission will release discussion papers over the coming months on specific areas where it believes there is scope for major productivity gains. They will cover the use of data, education and skills, the diffusion of innovation across the economy and impediments to business investment that will also include decarbonisation.
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