Chapter 12 - Labour Productivity

long run economic growth

sustained increase in economy’s productive capacity due to increase in LRAS

importance of long run economic growth

• relates to productivity growth which maintains economic growth and economic welfare and prosperity

productivity growth contributes to

• higher wages

• lower prices

• higher profits

• increased tax revenue

• strong EG

higher wages

• as productivity rise, labour cost to produce 1 unit of output fall

• profit increase, firm can up wage

lower prices

• productivity rise, labour cost fall, business can reduce price

• IC improve, equitible income distribution(creates more jobs in diff sectors)

higher profit

• productivity rise, unit COP fall

• price fall, IC up, X revenue rise

increased tax revenue

• biz profit increase, gov receive more tax revenue

• gov spend on public service, SOL improve

strong EG

• as productivity rise, economic capacity improve, thus GDPfe shift right

• more room for economic expansion

driving forces for long run EG

• labour productivity

• capital deepening

• technological progress

labour productivity

• measure of g/s produced for every hour worked

• as labour productivity improve, efficient workforce lead to economic growth

capital deepening

• increase in physical assets

• help improve production and efficiency, improve EG

technological progress

• technological innovations lead to efficient production, EG improve

labour productivity

• output per labour hour worked

• output/labour input

• China’s C19 policy affected global supply chains, thus although labour hours increase, output still stagnant, hence fall in labour productivity

multifactor productivity

• output per unit of combined inputs

• GDP/labour hours+capital input

factors affecting labour productivity growth

• human capital

• capital deepening

• technological progress

human capital

• increase in education and specialisation in workforce

• include labour market turnover, labour market hoarding, demographic development, education and training

labour market turnover

• increase in job mobility boosts labour productivity if it results in better job matching and labour reallocation to more productive firms

• labour productivity depends on productivity of sectors

• BUT short term, productivity may fall as worker have to relearn

labour market hoarding

• firms hold onto more workers than needed

• labour underutilization, labour productivity fall

demographic development

• aging population may lead to fall in labour supply

• firms must adopt labour saving techniques

education and training

• educated workers more efficient

capital deepening

• increase in proportion of capital stock to num of labour hours worked

• may increase labour productivity and output

technological progress

• level of innovation and advances in tech that allow businesses to produce more output with the same level of input

impact of changes in labour productivity on UE

• structural UE

• real wage UE

• residual UE

structural UE

• UE due to skill mismmatch

• shifting of resources lead to structural UE

real wage UE

• UE due to high wage, thus employers dont want hire

• if gov implement labour market reform, lead to enteprise level bargaining, thus decentralize wage and real wage UE fall

residual UE

• UE due to being unfit to work

• gov implement infrastructure reform, EG: healthcare infrastructure, employees recover and start work faster, residual UE fall

aggregate production function

• reflects law of diminshing return: with each increase in input, output increase by smaller amount

gov objective

improve efficiency of market by improving competition and removing unecassary regulations

gov policies that influence labour productivity

(Please Take Donuts For Lunch To Never Ignore Teacher)

• public reform

• taxation reform

• deregulation

• financial reform

• labour market reform

• tariff reform

• national competition policy reform

• infrastructure reform

• trade reform

public reform

• privatisation - sale of publically owned assets to private investor, improve efficiency by forcing firms to be answerable to shareholders

• corporatisation - forcing gov business enteprise to face same market as other businesses, must aim to make profit since they dont receive any gov benefits

taxation reform

• reduces extent to which tax system distorts allocation of resources

• EG: introduction of GST(10% tax on ALL g/s) to replace WST, replace 3 tier wholesale system

• RESULT: business cost fall, encourage investment

deregulation

• remove bureautic barriers to enter market

• make industry more efficient

financial reform

• open banking sector to new competition

• many banks in industry, more money to borrow/lend

• no need raise IR

labour market reform

• improve functioning of labour market as a policy solution to reduce structural UE

• EG: workplace relations act 1996, paved way for enteprise level bargaining, decentralize wages

• RESULT: flexible wages, fairness, cooperation, improved workplace participation, less strikes

tariff reform

• reduces effective rate of protection

• EG: tariff on passenger motor vehicles reduced to 5% in 2010

• RESULT: efficient industry, e.o.s

national competition policy reform

• most extensive microeconomic reform package in recent Aus history

• EG: establishment of Aus Comp and Consumer Commission - competition watchdog to ensure businesses dont engage in anti-competitive conduct, allow private firm to compete with GBEs

• RESULT: price determined by market forces

infrastructure reform

• provide building blocks for business to further invest in productivity measures

• EG: transport infrastructure - reduce commute and delivery times, more time for worker to do productive taks

trade reform

• obtain reductions in internal support and subsidies to foreign competitors to gain access to foreign markets and eliminate export subsidies

• EG: WTO create fair trading environment, maximise FTA oppurtunities