Productivity – labour, education and skills NatStats 2010 Phillip Chindamo Chief Economist Australian Industry Group Sydney 16 September 2010 Key messages • Productivity remains the most important of the three Ps • Australia’s recent productivity performance has been patchy • Investment in ‘human capital’ is critical to enhance productivity • Need to address existing workforce skills gaps and skills shortages • Policy priorities also include better targeted funding • Better statistical information can help assess progress and inform policy decisions Economic benefits: Australian estimates • Private returns (earnings) – Approx 15% average return to investment in bachelor degrees – Significant returns to high school education • Economy-wide returns (growth, productivity) – Lab productivity elasticity: 0.10 w.r.t. tertiary education – 1.1% higher annual GDP in long-run • Consensus view: returns are significant even though estimates vary significantly Human capital and productivity Australia Source: Daron Acemoglu, MIT First among equals: productivity in the 3Ps Source: IGR 2010, Commonwealth Treasury 19 75 19 /76 76 19 /77 77 19 /78 78 19 /79 79 19 /80 80 19 /81 81 19 /82 82 19 /83 83 19 /84 84 19 /85 85 19 /86 86 19 /87 87 19 /88 88 19 /89 89 19 /90 90 19 /91 91 19 /92 92 19 /93 93 19 /94 94 19 /95 95 19 /96 96 19 /97 97 19 /98 98 19 /99 99 20 /00 00 20 /01 01 20 /02 02 20 /03 03 20 /04 04 20 /05 05 20 /06 06 20 /07 07 20 /08 08 20 /09 09 /1 0 Index = 100 in 1975-76 200.0 180.0 160.0 2 Source: ABS data 120.0 100.0 0.0 1.5 80.0 60.0 1 40.0 0.5 20.0 0 Average annual growth (%) Australia’s patchy labour productivity 3 Labour productivity growth (RHS) Labour productivity: real GDP per hour worked Average annual growth (RHS) 2.5 140.0 Existing workforce skills need attention • National Workforce Literacy Project • Key findings: – Low levels of literacy and numeracy negatively impacting on workplace productivity – Capacity to address literacy and numeracy most difficult for small businesses – Many different measures can help address workforce skills needs – Bottom line: productivity growth will stagnate further if this is not addressed percentage of respondents Skills shortages also risk growth 60 49.7 50 37.4 40 28.9 30 15.7 20 10 42.3 5.8 10.1 10.1 0 Extreme risk 2010 Source: Australian Industry Group High risk Moderate risk 2015 Low risk Policy priorities for education and skills • Increasing real levels of funding in VET • Additional funding for demand-driven models • Linking eligibility for public funds to quality performance • Developing, funding and implementing a National Adult Language, Literacy & Numeracy (LLN) strategy • Ongoing funding for the Apprenticeship Kickstart bonus for apprentices in traditional trades • More and better statistical information on education and skills Statistical information priorities • Further ABS work on measure of ‘human capital’ stock – Ideally time series allowing growth accounting decompositions • Further ABS work on quality adjusted labour inputs to productivity estimates • Need for annual survey examining employers’ training and recruitment practices and skills needs – Include employer expenditure on skills training • Detail on course and module completion rates in the VET sector by individual providers – Important for accountability, quality and transparency www.aigroup.com.au/economics