EXPERIMENTAL ESTIMATES OF STATE PRODUCTIVITY

Productivity estimates measure how efficiently a society employs finite resources to produce goods and services. Productivity is calculated as the ratio of output to inputs.

This release presents the first ABS experimental estimates of state level productivity (Tables 27 to 42). This article describes the general concepts and methodology adopted to develop these estimates and discusses some of the results for each state.


METHODOLOGY AND DATA MEASUREMENT

The method adopted to estimate State Multifactor productivity (MFP) - output produced per unit of combined inputs of labour and capital - aligns with the concepts and definitions of the Australian System of National Accounts (ASNA), described in Chapter 19 of the Australian System of National Accounts: Concepts, Sources and Methods (cat. no. 5216.0) (CSM).

State output and experimental capital stock data is sourced from Australian National Accounts: State Accounts (cat. no. 5220.0) while labour inputs are sourced from Labour Force, Australia, Detailed, Quarterly (cat. no. 6291.0.55.003 Table EQ06). State output is defined as Gross Value Added (GVA) in chain volume terms while labour inputs are defined as hours worked.

A number of simplifying assumptions have been adopted in addition to those adopted at the national level. Where State level data is unavailable, national industry proportions are applied to impute the missing values:

• National inventories are allocated to States using State current price GVA proportions for the stock of inventories, as a State dimension is not available. The ABS also compared allocations using estimated resident population proportions and found that the State MFP aggregates were not sensitive to either choice.
• To separate State by industry combined gross operating surplus and mixed income (GOSMI) into its components, gross mixed income (GMI) is estimated using the same industry’s GMI proportion in GOSMI at the national level (Footnote 1). GMI was then split into income attributable to capital and labour using the same method to impute labour and capital shares of GMI at industry national level.
• Rental prices by State by industry are imputed using the national industry asset rental prices. This method assumes there is no variation in price between the States for any given asset in a given industry for the same year. For example, the rental price of other transport equipment in wholesale trade is assumed to be the same across all States and territories. This simplifying assumption is not expected to distort rental prices significantly because, in estimating state capital stock, the nationally assumed asset lives (and therefore depreciation rates), and GFCF price indexes were applied to the same assets at State level. Importantly, for any given asset, variations in the rental prices between industries are completely captured under this method.

STATE ANALYSIS

States have different productivity growth rates due to a number of factors. Key factors include individual industry productivity performance as well as State’s industry composition, which varies across states and can also vary over time due to structural changes to the economy. For example, mining intensive States typically have higher labour productivity growth, since output per worker is higher in mining relative to other industries.

Figure 1 presents state average labour and multifactor productivity growth rates from 1994-95 to 2016-17.



The remainder of this section presents results for each State including underlying drivers of output and labour productivity growth (Footnote 2).


NEW SOUTH WALES

Labour productivity in New South Wales (NSW) averaged 1.9% per year over the period 1994-95 to 2016-17. Capital deepening contributed 0.9 ppts per year to this growth and was particularly strong between 2000-01 and 2008-09, averaging 1.2 ppts. MFP contributed 1.0 ppts to labour productivity growth over the same period (see Figure 2.A).

Figure 2.B shows that over the period 1994-95 to 2016-17 output growth averaged 2.8% per year. Capital services growth was the largest contributor to output growth averaging 1.2 ppts per year. MFP contributed 1.0 ppts with modest contributions from hours worked (0.6 ppts per year) over the same period.






VICTORIA

Victoria’s labour productivity over the period 1994-95 to 2016-17 averaged 1.9% per year. Capital deepening contributed 1.1 ppts on average and MFP contributed 0.8 ppts. MFP growth was stronger earlier in the time series, averaging 1.9 ppts contribution per year from 1994-95 to 2003-04, before falling 2.6 ppts to average a -0.7 ppts contribution between 2004-05 and 2009-10. Since 2010-11, MFP has rebounded, averaging 0.8 ppts per year (see Figure 3.A).

Figure 3.B shows that over the period 1994-95 to 2016-17, Victorian market sector output growth averaged 3.2% per year. Capital services was the main contributor to output growth, averaging 1.6 ppts, while both hours worked and MFP modestly contributed 0.8 ppts each.




QUEENSLAND

In Queensland, labour productivity growth averaged 2.3% per year over 1994-95 to 2016-17. Capital deepening contributed 1.6 ppts and MFP contributed 0.7 ppts on average over the same period. The MFP contribution was quite strong from 1994-95 to 2003-04, averaging 1.8 ppts per year, before declining 0.5 ppts per year on average from 2004-05 to 2014-15. MFP recovered from 2015-16, contributing on. average 1.7 ppts per annum (see Figure 4.A).

Figure 4.B shows that over the period 1994-95 to 2016-17, output growth averaged 3.8% per year. The main contributor to output growth was capital services, averaging 2.2 ppts over the same period, while hours worked and MFP contributed 0.9 ppts and 0.7 ppts respectively.




SOUTH AUSTRALIA

From 1994-95 to 2016-17, labour productivity in South Australia grew 1.5% per year on average. Capital deepening contributed 1.1 ppts and MFP contributed 0.4 ppts on average over this period. South Australia saw strong MFP growth from 1994-95 to 2001-02 contributing 1.6 ppts per year. Between 2002-03 and 2014-15, the MFP decline averaged 0.3 ppts per year but has recently rebounded to average 0.8 ppts contribution over the last two years (see Figure 5.A).

From 1994-95 to 2016-17, South Australia’s market sector value added grew 1.9% per year. Capital services contributed 1.3 ppts per year while MFP and hours worked contributed on average 0.4 ppts and 0.2 ppts per year respectively (see Figure 5.B).




WESTERN AUSTRALIA

Labour productivity in Western Australia was particularly strong, averaging 2.9% per year from 1994-95 to 2016-17 (see Figure 6.A). By adopting less labour intensive technologies, capital deepening contributed significantly, averaging 2.4 ppts per year (reflecting strong capital services growth averaging 6.2%, relative to hours worked averaging a modest 1.6%). WA’s MFP contributed 0.5 ppts to Labour productivity over this period (Footnote 3).

Figure 6.B shows that over the period 1994-95 to 2016-17 output averaged 4.5% per year. Capital services growth was the largest contributor to output growth averaging 3.3 ppts per year, with more modest contributions from hours worked of 0.8 ppts per year and MFP of 0.5 ppts per year over the same period.



TASMANIA

Labour productivity in Tasmania averaged 1.4% per year from 1994-95 to 2016-17. Capital deepening was the largest contributor (1.1 ppts on average) while MFP contributed only 0.3 ppts over the same period Tasmania’s MFP growth was relatively strong earlier in the time series, contributing 0.6 ppts per year from 1994-95 to 2001-02. However, MFPs contribution fell 0.5 ppts to average 0.1 ppts per year between 2002-03 and 2016-17 (see Figure 7.A).

From 1994-95 to 2016-17, output growth averaged 1.7% per year. Capital services, which averaged 1.2 ppts per year, was the main contributor to output growth. Hours worked and MFP contributions averaged 0.2 ppts and 0.3 ppts respectively. The hours worked contribution was much stronger from 1994-95 to 2008-09, averaging 0.5 ppts per year. From 2010-11 to 2016-17 hours worked contracted, detracting 0.1 ppts on average (see Figure 7.B).






NORTHERN TERRITORY

The Northern Territory recorded strong growth in labour productivity over the period 1994-95 to 2016-17 (3.2% per year). Capital deepening contributed 2.5 ppts per year on average, while MFP contributed 0.7 ppts per year on average (see Figure 8.A).

Figure 8.B shows that market sector value added grew 4.8% per year from 1994-95 to 2016-17. The main contributor to output growth was capital services, averaging 3.4 ppts per year. The strong growth in capital services partly reflects the rapid rise in mining investment in the territory. Both hours worked and MFP contributed 0.7 ppts per year on average.



AUSTRALIAN CAPITAL TERRITORY

In the Australian Capital Territory, labour productivity grew 2.5% per year from 1994-95 to 2016-17. The main contributor to labour productivity growth was capital deepening averaging 1.9 ppts per year, while MFP contributed 0.6 ppts (see Figure 9.A).

Figure 9.B shows that from 1994-95 to 2016-17 output grew by 3.3% per year. Capital services was the main contributor, averaging 2.2 ppts per year, while hours worked and MFP contributed 0.5 ppts and 0.6 ppts per year respectively.


FUTURE WORK

The estimates presented in this release are experimental. The ABS is committed to continually improving the accuracy and reliability of its statistics. Areas considered for further improvement include the estimation of State capital services by developing State specific rental prices. In addition, the ABS will investigate methods to improve the coherence between the State and national estimates.


FOOTNOTES

Footnote 1 The ABS tested the robustness of State MFP aggregates using three different GOSMI splitting scenarios. It was found that the aggregation of State MFP to the national was robust to the various choices, since capital services indexes are not significantly influenced by the choice of GOSMI allocation.<back>

Footnote 2 In the growth accounting framework, output growth (GVA) can be decomposed into the growth in hours worked and capital services, weighted by their respective income shares, and MFP growth. Through rearrangement, contributions can be re-expressed as contributions to output per hour (labour productivity growth), comprised of the contribution from capital services per hour worked (capital deepening), and MFP growth. For more details on growth account contribution to growth see page 445 of CSM (cat. no. 5216.0) and page 53 of the Information Paper: Experimental Estimates of Industry Level KLEMS Multifactor Productivity, 2015 (cat. no. 5260.0.55.003). <back>

Footnote 3 There can be significant timing differences between completed capital projects that are fully utilised and the capital services recorded based on value of work done, irrespective of project completion. For major mining projects, it may take several years until output reaches full production. <back>