OPINION: The amount of output produced per hour worked, also known as labour productivity, is a key contributor to economic growth and a driver of living standards.
The amount of output produced per hour worked, also known as labour productivity, is a key contributor to economic growth and a driver of living standards.
Yet compared with other countries in the Organisation for Economic Co-operation and Development, Australia has ranked lower on labour productivity over the past two years than at any point in the past decade.
Like other developed countries, Australia has shifted towards a service-oriented economy, which tends to be less capital intensive, making it harder to boost productivity and get more done with fewer resources.
The Australian economy has continued to benefit from the value of the country’s market sector outputs in export markets, but a lot of this has to do with high iron ore prices and a strong mineral and resources sector.
But the iron ore gravy train will not last forever.
There is an argument to suggest that rising commodity prices have obscured falling productivity in the resources sector.
This is because mining companies are incentivised to extract lower-grade resources using more inputs, as the rise in commodity prices makes the extraction of more marginal deposits profitable.
Recent productivity statistics from the Australian Bureau of Statistics shows that labour productivity has fallen over in the past year in a number of important sectors, including mining, manufacturing, construction and retail.
The expected decline in resources prices over the next three years has already been factored into a cautious long-term economic outlook in this year’s federal budget.
The Australian economy needs to innovate if it is to reverse the recent trend of falling productivity and compete effectively against global competitors.
Research and development is a critical piece of the jigsaw to boost productivity and ensure the success of Australian businesses in the global market.
And yet, Australia invests far less in R&D than other developed countries.
National spending on R&D as a share of gross domestic product sits at 1.8 per cent in Australia, against an OECD average of 2.6 per cent.
The equivalent share of spending on R&D is three times higher in Israel and twice as high in the US and Germany.
We need to up our game when it comes to investment in research and business innovation.
The most recent national ABS data on business innovation shows the share of innovation-active businesses in Australia was 52 per cent in 2021 and as low as 38 per cent in the construction sector.
Australian businesses need to identify new points of difference, particularly as they relate to emerging opportunities.
The global transition to net zero is one of the strongest opportunities Australia has to capitalise on its natural resource endowments and knowledge base.
The federal budget has invested heavily in green technologies, quantum computing and renewable energy, including a $1.7 billion Innovation Fund and $1.5 billion for the Australian Renewable Energy Agency.
However, more investment in R&D will be essential to enhance global competitiveness, and industry participation will be essential.
This will encourage businesses to explore new ideas, invest in technological advancements and implement innovative practices and processes in the workplace.
There also needs to be greater degree of collaboration between Australia’s research institutions and industry to ensure that new ideas and innovations can translate to high-value, marketable products and solutions.
Acting quickly on this will ensure that Australia can sustain its economic growth and enhance living standards for everyone.
- Dr Lili Loan Vu is research fellow at the Bankwest Curtin Economics Centre
