One word comes up more than ‘jobs’ and more than ‘skills’ in Thursday’s jobs and skills summit briefing paper. It is “productivity”.
Which is strange, because even though many of us think we know what productivity is, and even though many more assume that productivity can be easily measured, it’s a surprisingly slippery concept.
In a report released earlier this month, the Productivity Commission (yes, we have a whole commission dedicated to productivity) makes the idea sound simple.
Present an equation:
productivity = output divided by inputs
The commission makes the reasonable point that producing more output (of anything: flowers, health care, food) per unit of input, as long as quality is maintained, should be the goal of life.
Who wouldn’t want to clean a house in five hours instead of 10? Who wouldn’t want to make a car in five hours instead of 10?
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Who wouldn’t want more for less?
You can use the freed up time to rest or do more than you really want to. And since you were producing more per hour worked, you would be in a good position to get a raise.
The commission is careful not to say that you are getting a raise. Instead, he says, where there have been sustained wage increases above inflation, they have almost always been supported by increased productivity.
The proportion of the benefit of an increase in output per hour worked that goes to wages depends, among other things, on bargaining power.
Since 1990, the share of the spoils (technically, the share of total factor income) that goes to profits has risen from 24% to 31%, while the share of wages has fallen from 55% to 50%.
But it should be beyond doubt that the only guaranteed way to raise living standards is to increase productivity. Beyond a certain point, working longer hours won’t help, because, in the words of the commission, “there are only so many hours in the day to work.”
It won’t use more resources either. They are finite. The only sure way to keep getting more of what we want is to get more of what we have, which is the definition of productivity.
And only recently has productivity growth slowed to what the summit briefing paper describes as the lowest rate in half a century.
Raising productivity has become more difficult
It’s probably not because we’ve run out of ideas, although maybe it’s because we’ve used up a lot of good ones.
When enterprise bargaining was introduced in the early 1990s, when we were asked to find better ways of doing things at work in exchange for pay rises, we did. But it became more difficult to continue to find such large gains.
More generally, the extraordinary success of the productivity gains we achieved in manufacturing and agriculture has made them less important as employers. Now most of us (almost 90%) work in services. And services are hard to automate.
Worse, it’s hard to know what the outcome is for many services. There is a reason why the debate about the government’s commitment to defense is couched in terms of spending. It’s hard to say what we get.
Productivity has become more difficult to measure
What about the hairdresser? A hairdresser who cuts twice as many heads a day is not necessarily twice as good, even if the quality of each cut remains the same. Part of the service of a good hairdresser is the quality of care it offers to each client.
The same goes for healthcare and education. This is one of the reasons why the Australian Bureau of Statistics does not produce productivity estimates for the “health care and social care” or “education and training” industries, two of the largest industries in ‘Australia.
And many education and health services are provided free or subsidized, making the price charged an unhelpful measure of output.
(The bureau plans to introduce “experimental” estimates of education industry productivity next year, but it’s struggling. It wants to define the output as the “organized communication of knowledge from teacher to student,” which gives a sense of how murky the whole idea is.)
Most of us, almost 90%, work in services. And services are hard to automate. (Unsplash: Israel Andrade)
Put the quality of work and life on the agenda of the summit
Across the economy, the Productivity Commission relies on the rough and ready measure of the office: gross domestic product per hour worked, but it’s misleading for the same reason.
Labor came to office promising that all Australians living in aged care would receive an average of 215 minutes of care a day.
When this happens, it will be a drag on measured productivity: GDP per hour worked. However, it will greatly improve the lives of Australians.
It makes sense for the summit to focus on productivity, given that measured productivity growth has slowed, but it should only be part of the conversation.
Other, more personal things also matter, including the quality of our lives, the quality of our care, and the quality of our workplaces, which attendees would be wise not to forget.
Peter Martin is visiting professor at the Crawford School of Public Policy, Australian National University. This article originally appeared on The Conversation.