Financial Advisors & Planners Perth I Westmount Financial I Rick Maggi

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Why the need to lift productivity and why it might be hard...

“Productivity isn’t everything, but, in the long run, it is almost everything”. Paul Krugman, Economist

“The only thing that we learn from history is that we learn nothing from history.” Georg Hegel, Philosopher

Introduction

Outgoing Reserve Bank Governor Philip Lowe has highlighted Australia’s weak productivity growth and noted that boosting it “should be the issue that dominates economic discussion”. So why is boosting productivity so important? And why is it seen as so hard to do? It’s worth having another look at it given its importance to our economy and investment markets.

What is productivity?

Productivity refers to the level of economic output for a given level of labour and capital inputs. Increased productivity means more is being produced for given inputs. Output usually refers to Gross Domestic Product and dividing inputs of labour (hours worked) and capital (structures and machinery) into GDP gives “multi factor productivity”. However, its more common to refer to measures of labour productivity, ie, GDP per hour worked. The next chart shows this for Australia.

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