Recent movements

Productivity data have been unusually weak in recent years. Labour productivity (output per hour worked) in Australia's market sector increased by only 1.1 per cent in 2007-08, while multifactor productivity (output per combined input of labour and capital) fell by 0.4 per cent (table 1).

This is now the fourth successive year in which multifactor productivity growth has been well below average and, taking these years together, multifactor productivity is estimated to have fallen by a total of 1.0 per cent since 2003-04. The decline in productivity has resulted from very strong growth in demand for inputs - both capital and labour (figure 1). Over this period, output growth has continued at around the long-run average rate.

Short-term movements in productivity should be interpreted with some caution. Productivity growth tends to move in cycles and some of the slowing reflects the choice of 2003-04, a cyclical peak in multifactor productivity, as the reference point. Productivity growth is also very volatile in the short term, and recently it has been affected by unusual movements in a number of industries, most notably agriculture, mining, and electricity, gas and water supply. (For a broader discussion of industry productivity volatility, see Issues in measurement of industry productivity.)

An easing of drought conditions saw multifactor productivity in agriculture recover from a fall of 19.4 per cent in 2006-07 to increase by 7.6 per cent and contribute 0.3 percentage points to market sector productivity growth in 2007-08. However, this year's increase is modest compared to recoveries from previous droughts, as low rainfall and high average temperatures through the spring of 2007 held down yields in much of the country.

In mining, multifactor productivity has fallen sharply in recent years. The increase in world mineral prices has boosted the demand for labour and capital to expand production capacity while lags have meant that this new production capacity is only just starting to come on stream. Output has also been held down by depletion of oil wells in Bass Strait and the Bonaparte Gulf. Over the four years to 2007-08 as a whole, the number of hours worked in mining increased by 47 per cent and the volume of capital services consumed increased by 38 per cent, while the volume of mine output has risen by only 16 per cent. Mining subtracted around 0.4 percentage points per year from multifactor productivity growth over this period. For a more detailed discussion, see Productivity in the mining industry: Measurement and Interpretation.

Productivity in the electricity, gas and water supply (EGW) industry has also fallen in recent years, with average annual multifactor productivity declines of 4.2 per cent per year since 2003-04. The industry has seen rapid investment in new capacity to address concerns over water security and meet the increased demand for energy that has followed strong population and income growth. Investment rates have been around twice normal levels over the past four years. This industry has also been affected by drought. The output of the water supply industry has fallen because there is less water available and some power plants have also been affected.

Other industries have made smaller contributions to the recent movements. Accommodation, cafes and restaurants recorded multifactor productivity falls in 2007-08 associated with very strong employment growth. On the other hand, multifactor productivity has continued to grow strongly in other industries, including wholesale trade, communication services, finance and insurance and construction. Figure 2 shows the divergence between the productivity performance of the electricity, gas and water supply, agriculture and mining industries and the remainder of the market sector in recent years.

Contact: Don Brunker, Assistant Commissioner, Productivity Analysis Branch, 02 6240 3342.

Table 1. Annual growth in productivity and its components

Per cent

Data source: ABS, Australian System of National Accounts, 2007-08.

Figure 1. Growth in output, inputs and multifactor productivity, 1989-90 to 2007-08

Per cent per year

Data source: ABS, Australian System of National Accounts, 2007-08.

Table 2. Recent growth in multifactor productivity and industry contributions

Data source: Calculations are based on data from ABS, Experimental Estimates of Industry Multifactor Productivity, 2007-08.

Figure 2. Multifactor productivity in the market sector excluding EGW, mining and agriculture, 1996-97 to 2007-08

Index 1999-2000 = 100

Data source: Calculations are based on data from ABS, Experimental Estimates of Industry Multifactor Productivity, 2007-08.