Update of Productivity Estimates - 1998-99

Background

The Australian Bureau of Statistics released new productivity estimates on 30 November 1999 (ABS Cat No. 5204.0). The new release not only provides an estimate for an additional year (1998-99), but it also makes significant revisions to estimates for earlier years. The estimates are published in two parts; one part containing aggregate estimates for the market sector of the Australian economy, and the other part containing estimates for individual industry sectors.

The revisions are part of a transition to a new ABS methodology for estimating productivity. The ABS outlined the major changes in the 1997-98 issue of the Australian System of National Accounts (ABS Cat No. 5204.0). These included an improved and more complex methodology for deriving capital inputs. The 1997-98 issue included capital estimates according to the new methodology. The ABS described these estimates as ’experimental’. The 1998-99 issue has included revisions to the capital estimates.

In essence, there have been two types of revision:

• The weights used to aggregate asset types and the measure of input from non-agricultural land have been revised. The effect of these changes has been to reduce the growth rate of capital input in the 1960s and 1970s and to increase the growth rate in the 1980s and 1990s.
• The capital and labour shares used to weight capital and labour inputs together in a total input measure have been revised. Capital receives a greater weight, especially in later periods.

The combined effect of these changes is to raise the rate of growth in total inputs. (With growth in capital higher than growth in labour, giving capital a larger weight raises growth in total inputs.) The higher growth in inputs in the revised series (and with no revision of output) means that growth in multifactor productivity (MFP) is  correspondingly lower.

Although the changes reduce the general scale of productivity growth, the broad pattern of growth over time remains.

The purpose of this note is to compare the old and new estimates and to update charts based on ABS estimates that have been presented in the recent Productivity Commission publications:

• Microeconomic Reform and Australian Productivity: Exploring the Links
• Annual Report 1998-99

Little background on the estimates is presented here. The interested reader should refer to the original publications for further background and interpretation.

Details of Revisions to ABS Productivity Estimation Methodology

The ABS derives its estimates of MFP for the market sector by forming a combined chain volume measure of labour and capital inputs and dividing it into the chain volume measure of the gross value added of the market sector. The elemental capital inputs are compiled at a detailed level. There are capital input measures for up to 14 asset types for the corporate and unincorporated sectors for each of the 12 industry (ANZSIC) divisions that comprise the market sector. For each capital input there is a volume indicator of the flow of capital services and a rental value that is used to weight the service flow with the service flows of other capital inputs. An aggregate chain volume measure of capital services for the whole market sector is then weighted with a measure of hours worked using estimates of capital and labour income as weights.

Following a review of its MFP estimates, the ABS changed the rental values for its capital inputs and the volume indicator of capital services provided by non-agricultural land. The combined effect of the changes on the measure of the flow of capital services was to reduce the growth rate in the 1960s and 1970s and to increase the growth rate in the 1980s and 1990s. A major factor in this revision was a large upward revision to the rental values of computer equipment and software. The capital services from these asset types generally grow much faster than those of other asset types and their relative importance has grown over time. Hence, increasing the weight given to them has boosted the growth rate of aggregate capital services, particularly in later periods.

The review has also led to revisions to the estimates of capital and labour income used to weight together the aggregate measures of capital services and hours worked. As a result, capital services has been given a greater weight relative to labour over the entire time span of the estimates, but particularly in later periods.

Source: Communication from ABS