BEHIND THE DETERIATION OF PRODUCTIVITY GROWTH
Productivity measures “efficiency” of an economy’s production. There are two common measures of productivity: labour/capital productivity and multifactor productivity (MFP). However, MFP is a better indicator because it measures amount of outputs using both labour and capital. Therefore, it also reflects improvement in technology and provides economists a broader view of how an economy is developing.
Productivity growth is a primary source of income’s growth. Improvement in productivity at an economy- wide level increases outputs per inputs which mean higher income. This allows households to increase consumptions which raise living standards. At an industry level, productivity growth encourages industry to compete with others and maintain international competitiveness. This is especially important to Australia whose economy growth is largely dependent on exported products mainly to East Asian market (Department of Foreign Affair and Trade 2011).
However, since mid-2000s, Australian productivity growth has shown a sign of slowing down noticeably compared to a strong growth in 1990s (Figure 1):
Figure 1. Multifactor Productivity in Australian Market’s sectors
Source: ABS
MFP growth has varied significantly over these periods. According to ABS’s report, period from 1974-75 to 2003-04 has already been a completed cycle with 1.1% in average productivity. Therefore, some economists believe productivity growth decline is anything but typical.
When MFP reaches a negative growth rate (-0.4% in 2008-09) , economists start questioning once again about economy’s production and seeking for solutions to raise productivity growth rate. Many reasons have been put forward to explain the slump ...
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The global economy has been recovering from the financial crisis which occurs in 2008, then has a weak growth for most developed countries over 2012 and 2013. But economic activity in Canada has expanded at a faster pace than most other major advanced countries in 2012; however, economic performance in Canada has been unsteady throughout 2013 (The Economic review, 2013). After the last quarter in 2010 GDP growth rate grows rapidly, the GDP grows slowly but steadily in 2012 which remains at around 3 percent. Real GDP growth rate in Canada grows slowly in the first quarter of 2013, but increased by 5 percent in the second quarter ,then remains the same level until the first quarter of 2014 (Statistics Canada, 2014). In 2014, the Canadian government take a series economic action plan as a guide for the economy development such as improving investment conditions, ...
According to Payne (2014), the U.S. economic growth will strengthen in this year with an average of 2.7 percent because of various factors including the strengthening of consumer and business confidence. The other factor that will contribute to the strengthening of the country’s economic growth is Europe’s emergence from its long slumber, a trend that will brighten the prospects of foreign sales. However, this economic growth will largely be limited by ongoing government deficit reduction. As compared to the first half of 2013, economic conditions are already better since growth increased with an average of 3.7 percent in the second half of 2013. Consequently, expectations of increased economic growth in the United States are rising as people believe that this will be the best year since the tribulations of 2008 global recession. Generally, America’s GDP growth will become stronger in 2014 averaging at least 2.7 percent becaus...
In 2006 and 2007 the growth rate recovered to 3.9% and 3.4% but then dr...
During the 70?s the world entered a recession because ?the cost of economic growth of other industrialized nations began to rise rapidly?, the United States felt the effect. (AMSA, 2004, ¶ 14). With the development of other nations, came lose of industrial production for the United States of America. American Medical Student Association (2004) stated ?In 1950 we had 60% and by 1980 we only claimed 30% of the world production?, this brought higher prices as well as loses of jobs.
Hubbard, R. G., & O'Brien, A. P. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall.
John sits at home each night with his wife and two children and watches the news. He listens as experts on the economy tell him that the economy is growing and that the GDP is growing. He wonders how this can be, because he lost his job months ago and has not been able to find work since. Has the very country that John lives in moved on and left him behind? This is the question that many Americans are asking themselves, and many more will be soon. In the 1960s and early 90s productivity in America increased by record amounts. The nation was prospering, people had jobs, and they were spending their money. All of this was done by simple government intervention. Now America is looking at another rise in productivity, but this time it may be a little bit different unless the government takes the proper steps.
"Australia." Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. N.p., n.d. Web. 2 Dec. 2013. .
In the equation above it the product of K and P that is responsible for economic growth. It would appear then that K, the ratio of productive to unproductive labor, and P, the productivity rate are equally important factors in this determinance. However, Smith says that this is not so. The ratio of productive to unproductive labor does not change much over time, says Smith.
It was said that once-in-a-century advances in technology are transforming our economy. The computer chip is doing for today's knowledge economy what electricity did for our industrial economy a century ago. Synergies in technology are driving acceleration in productivity growth that enables us to grow faster with less inflation. Economic progress is speeding up; the speed limit is rising. “Real GDP growth has averaged 4 percent for the past four years, with declining inflation. This almost doubles the 2 percent to 2.5 percent not long ago considered the maximum noninflationary potential. But we've been growing faster than potential and sustaining the unsustainable for four years and counting. Sounds odd, doesn't it? Our faster output growth is based primarily on faster productivity growth and secondarily on faster labor force growth”. Productivity growth now appears to be at least 2.5 percent and rising. An increase from 1 percent to 2.5 percent is an increase of 150 percent, a huge jump with profound implications if sustained. Last year was encouraging. Productivity raised over 3 percent for the year and over 5 percent in the second half. It was said that the United States entered the 21st century with its economy on a roll. GDP growth averaged more than 3 percent a year in the 1990s. The country created 17 million jobs, driving unemployment down to a 30-year low of 4.1 percent. In the 1999-2000 the economy wasn’t doing so bad the unemployment rate was down, there were more jobs available, and production was doing well. When 2001 stated and even before then the economy was going down, many people were being laid off and so on. Then it happened the September 11th attack on the US, this attack has left the
Every year there is a ‘league table‘ published showing the level of economic growth achieved by each country. The comparison is made using each countries Gross Domestic Product, or GDP. An important factor to look at is the difference between actual and potential economic growth. Actual economic growth increases in real GDP. This increase can occur as result of using previously unemployed resources, or reallocating resources into more productive areas or improving existing resources. Whereas potential economic growth is the productive capacity of the economy. For example, it can be shown by the predicted ability of the country to produce goods and services. This changes when there is an increase in the quantity or quality of the resources. All countries have different ways of achieving this with the resources they have available to them. For this reason it party answers the question of why some countries are richer than others. It is widely thought that the productive capacity of an economy will increase each year largely due to improvements in education and technology. This will obviously differ from country to country. For example, in the UK the quality of fertilizer could be improved, hence forth increase the years fruit and vegetable output.
Five years ago, in the middle of 1997 Australia’s economic growth had begun to upturn after a period of recession during the ’96 year. This was unmistakably shown through the composite indicators of retail trade, dwelling investment and Australian share market valuations, all concurring with one another and demonstrating the effects of an upturn in economic growth.
Permatasari, S (2011, 7 August) Australia’s Economy has Strength to meet challenges, Swan Says; Bloomberg, Retrieved from http://www.bloomberg.com/news/2011-08-07/australia-s-economy-has-strength-to-meet-challenges-swan-says.html
Determinants of Productivity Determinants of Productivity Productivity is the quantity of output formed by one unit of production input in a unit of time. Inputs used in the production of the goods and services are the major determinants of any country’s productivity; they are also called factors of production. There are four major determinants of productivity in any country’s economy. Land: the land itself, and raw materials such as oil and minerals beneath it. The natural resources that are available without alteration or effort on the part of humans.
In order to assess the current state of the economy, the examination of important economic indicators or variables has always played a vital role in the understanding of the complex economic systems we live in. The analysis of these economic variables studied by many, not only has served as a tool to evaluate the current economic performance of a country, but also has allowed experts to envisage and continue the pavement of an economy's road. Currently, some economic variables have had favorable improvements indicating a general good outlook for the economy for the following months, requiring a further individual analysis and comparisons in order to foresee crisis or successes.
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