Estimates of Industry Level KLEMS Multifactor Productivity

KLEMS provides a detailed statistical decomposition on the contributions to output growth, represented by five input categories - capital (K), labour (L), energy (E), materials (M), and services (S). This allows for analysis on the changes to the input mix, such as the role of labour hours and composition of relative capital services or intermediate inputs, observed in industry output growth.

This issue of Estimates of Industry Level KLEMS Multifactor Productivity, incorporates historical revisions to gross output, intermediate inputs and hours worked that were previously released in the Australian System of National Accounts, 2020-21. Further information about the revisions is detailed in Improved estimates of the annual national accounts: Results of the 2021 historical revisions.

The revisions to hours worked is a result of the implementation of the Australian Labour Account series into the national accounts. This input series replaces the Labour Force Survey hours worked series, impacting KLEMS MFP from 1995-96 onwards. Further information on the implementation of the Australian Labour Account in productivity measurement will be published as a spotlight article in Estimates of Industry Multifactor Productivity, to be published 13 December 2021.

Economic activity during the 2019-20 financial year, was impacted by the beginning of the COVID-19 pandemic and associated containment measures, as well as a severe bushfire season that affected parts of New South Wales, Victoria and South Australia. KLEMS MFP was similarly affected, falling in eleven of the sixteen market sector industries.

The industries that experienced the largest falls in KLEMS MFP were:

• Agriculture, forestry and fishing recorded the strongest fall in KLEMS MFP (-3.8%), the third consecutive year of contraction in productivity for this industry. Gross output fell 6.2% with the industry heavily impacted by drought conditions. The drought resulted in declines in livestock and crop production. Intermediate inputs detracted 2.1 percentage points (ppts) from output growth, with the contraction strongest in services (-1.1 ppts) but also experienced in materials and energy.
• KLEMS MFP fell 2.9% in Accommodation and food services, the largest fall in productivity on record for this industry. The fall in KLEMS MFP contributed to a large fall in output of 12.0% reversing six years of growth. Driving the fall were intermediate inputs, which detracted 7.4 ppts from output growth. Among intermediate inputs, materials and services were the largest detractors weakening output growth by 3.8 ppts and 3.4 ppts respectively. The Accommodation subdivision was impacted by a severe bushfire season in December 2019 and January 2020, limiting access to traditional summer holiday destinations. Border closures in March 2020 restricted international and domestic movement, reducing demand for accommodation services. The commencement of a nationwide lockdown in March 2020 restricted food services to operate as delivery or takeaway only, reducing the demand for employees. This drove down hours worked detracting almost 2.0 ppts from output growth.
• Arts and recreation recorded a fall of 1.4% in KLEMS MFP, the largest fall since 2001-02. This contributed to the largest decline (8.7%) in output growth the industry has experienced. Intermediate inputs drove the fall detracting 6.8 ppts from output growth. Heavy smoke from the severe bushfires during the summer holiday season from November 2019 to February 2020 forced large events to cancel or postpone. The onset of the COVID-19 pandemic in March 2020 resulted in further cancellations due to firstly international travel bans and later domestic lockdown restrictions. This resulted in a fall in input costs, with services being the main detractor (-5.2 ppts) due to reduced costs for advertising, artist fees and administration.

Offsetting these weak results was Mining with output growing 2.4% and representing the 16th year of growth for this industry. KLEMS MFP also grew a solid 1.7%, recording the strongest growth among all the industries. Iron ore performed strongly with surging iron ore prices in 2019 and into early 2020, benefitting from ongoing weakness in the Australian dollar. Softening this growth were falls in other commodity prices and general weakness in the global economy which tempered demand. Intermediate inputs, which is usually a strong contributor to gross output growth, detracted -0.2 ppts, resulting from weakness in materials and services. The cost share for services has experienced a continuing decline after peaking at 38.6% in 2015-16 and falling to 29.2% in 2019-20.

Contributions to output growth are calculated by multiplying the growth in inputs by their respective cost share. Two period average cost shares for each industry are reported in the table below.

Industry cost structures are very diverse, varying from industry to industry and over time. For example, in Agriculture, forestry and fishing, cost shares in a given year are often dependent on seasonal and climate factors which cause input prices to vary. In other instances, changes in cost shares may occur progressively over time as industries undergo structural changes. 

This release previously used catalogue number 5260.0.55.004.