The puzzle in the latest national accounts

The latest national accounts suggest that over the March and June quarters of 2007 there has been a surge in market sector productivity growth (market output divided by hours worked in market sector). The ABS tells us this is the result of an increase in market sector output of about 2% and a DECLINE in hours worked of 0.5%.

Intuitively, this makes no sense. How could there have been a reduction of this order in hours worked in the market sector when there was a rise of 0.5% in hours worked in the economy as a whole in that same half year and of course strong employment growth and a fall in unemployment? Could all the increase in hours worked and employment over the six months to June have been confined solely to the non-market sector (health, education, government and perhaps property and business)?

If (as I suspect) the hours worked figures prove wrong and are revised, the labour productivity surge may well turn out to be a mirage. If the hours worked figures prove correct, it weakens Labors argument that national productivity growth is slowing down but it also weakens the Coalition’s argument that WorkChoices has stimulated labour demand as the figures would imply that WorkChoices (which is only marginally relevant to the government sector) is having a negative effect on labour demand in the market sector and a positive effect on productivity growth. Or maybe there are other forces at work. Its all very confusing. Any thoughts anyone?

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Jc
Jc
14 years ago

Fred

You can have an increase in the number of hours worked and still experience a rise in productivity. There are some very strong sectors in the economy at the moment. try and book a seat on a plane to anywhere at the moment. You literally cannot get on a flight in certain destinations outside the country.

My family own a small busines which I am not involved in and they could not find casual workers for about 2 months that fit the positions.

It really is a hot economy.

So yes, I think you can have booming conditions and see productivity improvemts at the same time.

Take Telstra.

A company did a partial IPO yesterday with the added benefit that Telstra is outsoucing a good deal of its street tech work with a cost saving to Telstra of about 150 mill. Not 100%…. but I suspect that could be a big productivity increase.

Another firm I know of recently installed 24/7 video system in its 7 offices worldwide. Its supposd to be a fantiastic system that was developed by Dreamworks- the film studio- and some large firm. It is supposed to save huge travel time for the executives and engineers.

It doesn’t have to be that the only time we experience large doses of productivity increases is when the economy is moving out of recession like yesteryear.

Stuff goes on Fred.

derrida derider
derrida derider
14 years ago

Productivity is a notoriously “noisy” series and subject to frequent revision after publication, being a ratio of series that are themselves noisy. I’d put very little weight either way on two single quarter’s figures.

Jc
Jc
14 years ago

It is the overlaid direction which important , DD and if the newest series is within the trend. If the 2 quarters are within the trend there is decent chance they are not that noisey and pointing towards the trend direction.

James Farrell
James Farrell
14 years ago

I know you don’t pretend to be an internet wiz, Fred, but it is customary to supply at least one link in a piece like this!

What DD said is right if you’re trying to understand underlying productivity trends. But, giving the figures the benefit of the doubt as far as their accuracy is concerned, it’s still worth asking why the 0.5% reduction in market sector hours has occurred. Could it just be a sudden shift to part-time work? Are people doing less overtime? We really need more disaggregated numbers.