Strong Uptake of ICT Improves Australia’s Productivity

The increased use of information and communications technology (ICT) has helped to raise Australia’s productivity growth, according to a Productivity Commission research paper.

The research paper - ICT Use and Productivity: A Synthesis from Studies of Australian Firms - draws together the findings from a series of studies undertaken in a project involving the Productivity Commission, the Department of Industry, Tourism and Resources, the Australian Bureau of Statistics and the Department of Communications, Information Technology and the Arts.

Australian firms invested more heavily in ICT from 1995. Firms could raise productivity by using ICT in the place of more labour-intensive means of undertaking tasks; and by using the capabilities of ICT to innovate in what they do (product innovation) and how they do it (process and organisational innovation).

The paper concludes that the stronger growth in use of ICT in the second half of the 1990s added up to half a percentage point to the acceleration in annual labour productivity growth (output per hour worked). The major effect of ICT on productivity growth occurred through substitution of ICT for labour, with a small contribution from ICT-based innovation.

Compared with most other OECD countries, Australia’s uptake of ICT and associated productivity gains were high. The paper draws on overseas research which shows that a number of factors help to explain inter-country differences. The policy environment - whether it fosters competition and allows firms flexibility to adjust - is one crucial factor. Another is the ability of management to identify new potential for productive use of ICT and to implement the investments and the organisational changes that are needed to tap that potential.