1301.0 - Year Book Australia, 2004

ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 27/02/2004

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Contents >> Industry structure and performance >> Industry productivity

Multifactor productivity (MFP) statistics provide a measure of changes in the efficiency of production. These measures are used by both government and private organisations to help gauge the effect of changes in work practices, technology, education and training.

MFP is the ratio of a measure of economic output to a combination of two or more factor inputs. In simple terms, MFP represents that part of the change in production that cannot be explained by changes in the measured inputs.

MFP statistics use chain volume industry GVA as the measure of economic output. Two inputs are used: labour (hours worked) and capital. The capital input used is a measure of different capital assets such as dwellings, other buildings and structures, and machinery and equipment, along with livestock, intangibles and non-agricultural land.

This means that MFP largely represents the effects of technical progress, improvements in the work force, improvements in management practices, and economies of scale. MFP can also be affected in the short to medium term by other factors such as the weather, and by variations in capacity utilisation associated with the business cycle.

Caution needs to be exercised in interpreting productivity measures as they are derived as a residual and are therefore subject to any errors in the output and input measures.

MFP measures are calculated for the market sector, an industry grouping comprising the following industries: agriculture; forestry and fishing; mining; manufacturing; electricity, gas and water supply; construction; wholesale trade; retail trade; accommodation, cafes and restaurants; transport and storage; communication services; finance and insurance; and cultural and recreational services. These are industries with marketed activities for which there are satisfactory estimates of the growth in the volume of output.

MFP estimates are subject to growth in the business cycle. It is for this reason that MFP growth is generally analysed as average growth rates from the peak of one growth cycle to the peak of another. This analysis assumes that labour is being utilised to the same degree at each peak in the growth cycle.

Graph 13.8 shows the MFP index for the market sector from 1991-92 to 2001-02. Over the most recent business growth cycle (1993-94 to 1998-99), MFP of the market sector has grown annually, on average, by 1.8%. This was more than twice the average annual growth rate over the previous business growth cycle (0.7% between 1988-89 and 1993-94).

Graph - 13.8 Multifactor productivity of the market sector - 2001-02

MFP statistics are available only for the market sector as a whole. Although MFP is the more comprehensive measure of productivity, the ABS also produces industry labour productivity indexes. One measure of labour productivity, an index of industry GVA in chain volume measures per hour worked, is useful because it is provided for each market sector industry.

Labour productivity is constant if there is no change in the amount produced (chain volume GVA) per hour worked. Changes in this ratio reflect changes in the average skill or productivity level of the workforce. This measure reflects not only the contribution of labour to changes in production but also the contribution of capital and other factors (e.g. technological changes and managerial efficiency).

Movements in employment and hours worked tend to lag movements in GDP. The implication being, in the period of the growth cycle when the growth in output is declining, indexes of labour productivity are also likely to decline, particularly if rapid growth in GDP is abruptly ended. Conversely, labour productivity indexes are likely to grow strongly when the economy comes out of a cyclical trough.

Graph 13.9 shows the average annual rate of growth in the amount produced per hour worked for market sector industries over the most recent business growth cycle (1993-94 to 1998-99). Over this period, the average annual growth rate was 3.4% for the market sector as a whole.

Most of the market sector industries increased their productivity per hour worked. Between 1993-94 and 1998-99, the industries with the highest average annual productivity growth rates were communication services (7.3%), electricity, gas and water supply (7.2%), wholesale trade (6.8%) and mining (5.2%). Negative growth was seen only in the cultural and recreational services industry. On average, this industry's productivity fell by 0.7% per annum between 1993-94 and 1998-99.

In the previous business growth cycle (1988-89 to 1993-94), market sector productivity per hour worked grew, on average, by 2.3% each year. The communication services industry and the electricity, gas and water supply industry were again the top two productive industries in terms of growth in amount produced per hour worked. The mining industry was the third most productive industry (rising on average by 5.3% each year). In this cycle, negative growth in amount produced per hour worked was seen in the accommodation, cafes and restaurants (-1.6%), wholesale trade (-1.4%) and cultural and recreation services (-0.4%) industries.

The biggest increase in productivity between the two business cycles (1988-89 to 1993-94 and 1993-94 to 1998-99) was in the wholesale trade industry. This industry's average annual productivity was 8.2 percentage points greater in the most recent cycle compared to the previous cycle.

Graph - 13.9 Average annual rate of growth in amount produced per hour worked, Market sector industries - 1993-94 to 1998-99