However in the PC’s latest report, Can Australia be a Productivity Leader?, new productivity rankings show how far behind the country currently stands.
“In the international league tables Australia’s labour market participation may warrant a gold medal, but our productivity performance is at best a silver standard,” Mr Brennan said.
Worse than the French
“The typical Australian worker can produce in five days what takes their United States counterpart only four days.”
The report said the typical Australian worker could only produce about 84 per cent of what the typical German worker can produce in one hour, even though the typical German worker has a lower average income than the typical Australian. Australia is also below France in terms of output per hour worked.
There are some industries in which Australia does fair better.
Its mining, construction and agriculture sectors were all significantly more productive than those in the US.
“These observations could reflect the theory of comparative advantage – that nations specialise in areas where they have strong underlying relative advantages, Australia being an exporter of mining and agricultural goods,” Mr Brennan said.
Estimates suggest Australian service industries are between 20 per cent and 60 per cent less productive than the same industries in the United States. But part of the problem is the large distances Australians have to cover in their jobs.
“Catch-up to the productivity level of the United States has proven elusive over the past five decades, partly because our relative remoteness and low population density have been a barrier to achieving efficient scale in manufacturing and goods distribution,” Mr Brennan said.
This level of productivity could change as Australia moves to a more concentrated services-based economy.
“Australia’s economy has, like all other advanced economies, undergone a transition away from goods production towards services production.”
Today about 80 per cent of employment occurs in the services sector.
“The shift towards services raises important questions about how future productivity growth will be generated, and the sorts of characteristics which might determine future gaps in productivity levels between countries.
“It is possible that these characteristics could mitigate some of Australia’s traditional disadvantages.”
The report admits that Australia will never have the dense customer base of the United States that makes manufacturing and goods distribution so efficient there.
But there are “opportunities for improvement in our international standings”.
“Businesses investing in management capability and organisational capital, regulations supporting flexibility and the adoption of new technologies and work practices, well-functioning cities harnessing the benefits of agglomeration of skills, to name but a few,” said Mr Brennan.