Microeconomic Reforms Raise Australia’s Productivity

The recent surge in Australia’s productivity growth is directly linked to past microeconomic reforms, according to a Productivity Commission report released today.

The report, Microeconomic Reforms and Australian Productivity: Exploring the Links, finds that growth in average incomes in the 1990s is back to rates last achieved in the 1950s and 1960s. Australia’s rate of productivity growth has been at a record high of 2.4 per cent a year in recent years — double its previous average. There are clear connections between the introduction of reforms, the acceleration in productivity growth and the improved income growth rates.

In addition to analysing broader trends, the Commission conducted more detailed case studies of key manufacturing industries and infrastructure services.

The Commission found that, prompted by a range of microeconomic reforms, the production side of the economy has been undergoing a transformation since the 1980s. The economy has become more flexible and open, with greater exposure to domestic and international competition. Businesses have had to reassess which goods and services they produce and how they produce them. Patterns of employment and investment have changed, with resources freer to move to industries where they contribute more to productivity and output growth.

Improved macroeconomic management has also contributed to the improved productivity performance. Other factors (such as recovery from recession, work intensity) may also have played some role, but cannot explain the strength of the productivity rise.