One word gets mentioned more than “jobs” and more than “skills” in the briefing paper for Thursday’s jobs and skills summit. It’s “productivity”.
Which is odd, because although many of us think we know what productivity is, and although many more assume productivity can be easily measured, it’s a surprisingly slippery concept.
In a report released earlier this month, the Productivity Commission (yes, we have an entire commission devoted to productivity) makes the idea sound simple.
It presents an equation: productivity = output divided by input
The commission makes the reasonable point that producing more output (of anything – flowers, healthcare, food) per unit of input, so long as the quality is maintained, ought to be the goal of life.
Who wouldn’t want to clean a house in five hours instead of ten? Who wouldn’t want to manufacture a car in five hours instead of ten?
Who wouldn’t want more for less?
You could use the freed-up time to kick back or make more of what you really want. And because you were producing more per hour worked, you would be in a good position to get a pay rise.
The commission is careful not to say you would get a pay rise. Instead it says that where there have been sustained pay rises above inflation, they have almost always been underpinned by increased productivity.
How much of the pay-off from an increase in output per hour worked goes to wages depends, among other things, on bargaining power.
Since 1990, the share of the spoils (technically, the share of total factor income) going to profits has climbed from 24% to 31%, while the share going to wages has fallen from 55% to 50%.
But it ought to be beyond doubt that the only guaranteed way to be able to lift living standards is to lift productivity. Beyond a certain point, working more hours won’t help, because, in the words of the commission, “there are only so many hours in the day to work”.
Nor will using more resources. They are finite. The only certain way to continue to get more of what we want is to get more from what we’ve got – which is the definition of productivity.
And just lately, productivity growth has slowed to a crawl, to what the briefing paper for the summit describes as the lowest rate in half a century.