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Much more to Australian productivity problems than labour costs

This article opens Australia's productivity closet and finds an extreme population growth skeleton there, masquerading as high labour costs. Some of us would think of it more as an elephant in the room than a skeleton, given the size of the problem, but the metaphor of hiding the issue serves its purpose.

The Australian Financial Review in an article entitled, "Australian businesses shackled by high labour costs:poll, on 27 Nov 2013 stated that:

"Falling productivity is of more concern to Australian business leaders than ­others in the Asia Pacific region a report has revealed and more than half think their ability to address the issue is ­average or poor.
A survey of Australian businesses by recruitment firm Randstad showed the 25 per cent of the nation’s business leaders interviewed were worried about productivity levels compared with 17 per cent in Malaysia, Hong Kong and Singapore and 19 per cent in India."

There is talk in the article about what aspects of the labour market might be impacting productivity, but none of what other underlying causes might exist. For example the rising cost of land impacting on rents for business premises and mortgages, which drives up overheads to contribute to lower profit margins.

Refer to these articles for more on this: "Land and Rent Costs to Business make Australia uncompetitive" and , "Cost of housing and cost of dependency in Australia."

"The survey found that 46 per cent of business leaders interviewed believed the top productivity challenge was developing leadership skills among employees to drive business growth. But 26 per cent said legislation impacting on workforce flexibility and costs was their biggest challenge to productivity."

"Productivity"

So let's look at how the ABS defines this Key Performance Indicator they call "productivity":

"Productivity is the efficiency with which an economy transforms inputs (such as labour and capital) into outputs (such as goods and services). When a nation achieves productivity growth, it is able to produce more goods and services from the same quantity of labour, capital, land, energy and other resources. In turn, improved production efficiency can generate higher real incomes and lead to long-term improvements in Australia's living standards. While education and training improve the quality of the labour force over time, and are a key input into productivity growth, lack of innovation, research, development, or investment in assets can reduce productivity growth and thus Australia's ability to compete in the international market.

The most comprehensive Australian measure of productivity available is multifactor productivity. It measures the efficiency with which combined labour and capital inputs are transformed into outputs. In the long-term, it represents improvements in ways of doing things (technical progress), which is the primary source of real economic growth and higher living standards. In the short term however, multifactor productivity also reflects unexplained factors such as cyclical variations in labour and capital utilisation, economies of scale, and measurement error."

Now you'll have to forgive me for taking a simplistic view of all this:

  • "When a nation achieves productivity growth, it is able to produce more goods and services from the same quantity of labour". So it's a no-brainer that more people are only going to improve productivity if the net result of their existence is productive (= their additional output - the additional overhead they create). So there are two factors at play here; the number of people and their respective productivities. Pretty simple stuff from a "big picture" perspective don't you think?
  • It is not true that "improvements in ways of doing things" is the primary source of real economic growth in Australia. Australia's government uses mass migration as a primary driver of real economic growth whenever the Prime Minister of the day choses; at his/her absolute discretion and "by stealth and without consensus"
  • As we know, roughly 50% of Australia's export revenue is produced by roughly 5% of the workforce.
  • Population has increased by about 18% over the last decade, while unemployment has increased by roughly 26%.
  • The larger population drives demand for goods (including real property) and services (including costly public funded services), which in turn drives prices, and labour costs, higher - even as unemployment rises. In fact wages have been rising at around 4% per annum over the last decade as the CPI has risen at around 2.8% per annum.
  • The ABS statistic described as Multi Factor Productivity has been declining at 1% per annum in recent years
  • It doesn't take a genius to see that a combination of these "big picture" issues might be expected to have a negative impact on productivity.
  • A reasonable person could easily conclude that using mass migration as an economic tool "by stealth and without consensus" might be an ill-founded and illegitimate strategy

So why doesn't Government and Treasury open up the closet and expose the extreme population growth skeleton?

Well you might ask.

If you are questioning the legitimacy of government conduct in this regard, please review and consider signing this petition and forwarding it to as many people as possible: Australia requires a public inquiry to determine a basis for the optimum rate of population growth

Comments

While the "ageing population" is being used to carry the burden of high costs of care and pensions for the elderly, the youth unemployment crisis is being overlooked. Population growth has outstripped our economy, and job creation, and now we have a whole army of disenchanted young people who are locked out from job security and the future.

In 2008 there were 19,500 long-term unemployed young people in Australia. Now there are 56,800. At the same time, net overseas migration last year was 240,000, and we now have over a million people from overseas in Australia on temporary visas, which give them work rights.

Our young people are on welfare benefits, and facing a bleak future, while migrants are undermining their rights to any jobs created by our economy. Not only is it hard to find jobs, the alternative is to spend more time in training or education. This does not actually increase the number of jobs, but delays the official unemployment figures. The cost of tertiary education is prohibitively expensive and means massive debt for people just starting out in life - and without any job/career certainty.

It's incongruous to have high immigration at a time of high unemployment, and the liberalisation of work permits is set to be eased with the free trade agreements. Rights to work in Australia are part of the deal, without labour testing!

There are many skeletons in the cupboard that the media won't touch. Productivity isn't increased by higher prices - it just means the same production but more expensive to buy, and produce. Higher productivity isn't produced by more people - it just makes production more cumbersome and prohibitive. The big industry now for Australia is land prices and houses, but they are not exportable commodities.

I agree that all the mounting media prejudice against older people (especially those on the age pension), and disability pensioners is a distraction.

Australia has a lot of young people, increasing due to our high birth rate and high immigration rate. Youth unemployment and youth anger and frustration is growing. our governments and mainstream media are, it seems to me, trying to direct this anger towards the elderly. In this way, no blame will fall on the government, large and influential corporations and the vested interests who gain from this situation.

Older people need to speak up and highlight what is happening here.