International productivity comparisons
International comparisons of labour productivity growth rates and levels can aid an assessment of Australia's productivity performance. However, these are subject to significant measurement uncertainty due to differences in scope and statistical methods across countries, cyclical movements in the economy and noise in the data. Productivity level comparisons can be made with less confidence than growth rate comparisons because of the difficulty of adjusting for price differences across countries. Comparisons of productivity levels within particular industries may also be less reliable than comparisons across whole economies.
Australia's labour productivity level is commonly compared with that of the United States, which is often considered the technological and efficiency frontier at the aggregate level. Over long periods of time, developed economies may expect at least to keep up with movements in the frontier, and ideally narrow the gap. However, this process is not automatic. While many European countries have attained productivity levels similar to those in the United States, others such as Canada have broadly kept pace and New Zealand has fallen further behind (figure 1, table 1).
In Australia, the process of productivity catch-up during the post war period has been slow and a significant gap remains. There was virtually no catch-up at the aggregate level in the 1950s and 1960s, with Australian productivity remaining at around 77 per cent of the US level. There was some steady catch-up in the 1970s and the first half of the 1980s, in part because US productivity growth declined. There was further catch-up in the 1990s, when Australian productivity accelerated sooner and faster than in the US, reaching a peak around 88 per cent of the US level.
Whilst there has been a relatively stable and sizeable productivity gap at the aggregate level, there is a diversity of experience at the industry level (table 2). Australia's catch-up towards the US in the 1990s was supported by stronger productivity growth in industries such as communications, finance and electricity, gas and water supply, while the productivity of Australia's manufacturing sector has been steadily slipping relative to the United States, due in part to technological progress within that country's large ICT manufacturing industry. Most of the remaining gap in productivity levels can be attributed to wholesale and retail trade and manufacturing. (See Can Australia match US productivity performance? for further information on international comparisons of productivity levels.)
Australia's labour productivity has grown more slowly than that of the United States since the end of the 1990s (table 1). Part of this decline reflects unusual conditions in the US where, although output growth has been only moderate since 2001, employment growth has been weak, resulting in strong labour productivity growth. Compared to other countries, Australia's performance appears healthier. For example, Australian labour productivity has kept pace with that of the European Union this decade, holding onto the gains made in the 1990s. (See Chapter 1 Enhancing Australia's productivity growth in the 2007-08 Annual Report for further information on recent productivity trends.)
Contact: Shiji Zhao (Assistant Commissioner, Productivity Analysis Branch) 02 6240 3342.
Figure 1. International labour productivity benchmarks
GDP per hour worked, US=100
Data source: Calculations are based on The Conference Board and Groningen Growth and Development Centre, total Economy Database, September 2008.
Table 1. Labour productivity
Annual average growth rate, per cent
Data source: Calculations are based on The Conference Board and Groningen Growth and Development Centre, total Economy Database, September 2008.
Table 2. Performance of the market sector industries
Australian relative labour productivity levels, USA = 100a
Data source: Industry data are an update of estimates in Can Australia match US productivity performance?, table 4.1, based on EU KLEMS 2008. Whole economy data are from The Conference Board and Groningen Growth and Development Centre, total Economy Database, September 2008.