What would it take to raise Australian productivity growth?


Roy Green, University of Technology Sydney

While productivity is once again growing in Australia, we face a big challenge in getting it to a level that would restore the rate of improvement in our living standards of the last few decades.

Yet the measures required to meet this challenge may not be the ones usually promoted by economists and editorial writers. We need innovation not just in the technologies we use but in our business models and management practices as well.

The problem, according to new Treasury research, is that national income growth can no longer be propped up by the favourable terms of trade associated with our once-in-a-generation mining boom.

Does this mean we are back to the hard grind of productivity-enhancing reform? There are (at least) two opposing schools of thought on this. Some believe reform is needed, but mainly corporate tax cuts and labour market deregulation. Others deny any such reform is even necessary.

What has happened to productivity?

Productivity is a complex issue, but may be simply defined as output produced per worker, measured by the number of hours worked. On this basis we have seen a modest spike in productivity growth over the last five years to 1.8% per year.

This is primarily due to “capital deepening”, an increase in the ratio of capital to labour. Contemporary examples include driverless trucks in iron ore mines, advanced robotics in manufacturing and ATMs in banking.

Before this five-year period, productivity growth was much lower, even negative. This was especially the case during the mining boom itself when capital investment was taking place but had not yet translated into increased output.

The Treasury paper argues that to achieve our long-run trend rate of growth in living standards of 2% a year, measured as per capita income, we now need to increase average annual productivity growth to around 2.5%.

This will require not just capital deepening, but also improvements in the efficiency with which labour and capital inputs are used, otherwise known as “multifactor productivity”.

The hype cycle

Australia is not alone in facing this productivity challenge. Globally, amidst what would appear to be an unprecedented wave of technological change and innovation, developed economies are experiencing a productivity slowdown.

Again, explanations for this vary. Some economists question whether the current wave of innovation is really as transformative as earlier ones involving urban sanitation, telecommunications and commercial flight.

Others have wondered whether it is still feasible to measure productivity at all when innovation comprises such intangible factors as cloud computing, artificial intelligence and machine learning, let alone widespread application of the “internet of things”.

However, there is an emerging consensus that we are merely in the “installation” phase of these innovations, and the “deployment” phase will be played out over coming decades.

This has also been called the “hype cycle”. New technologies move from a “peak of inflated expectations” to a “trough of disillusionment” and then only after much prototyping and experimentation to the “plateau of productivity”. Think blockchain in financial transactions and augmented reality for consumer products.


Read more: A guide to deconstructing the battery hype cycle


The world is bifurcating between “frontier firms”, whose ready adoption of digital technologies and skills is reflected in superior productivity, and the “laggards”, which are seemingly unable to benefit from technology diffusion.

These latter firms drag down average productivity growth and, lacking competitiveness, they inevitably find it more difficult to access global markets and value chains.

The increasing gap between high- and low-productivity firms is less a matter of technology as such than the capacity for non-technology innovation. In particular, this encompasses the development of new business models, systems integration and high-performance work and management practices.

Many of the world’s most successful companies, such as Apple, gained market leadership not by inventing new technologies but by embedding them in new products, whose value is driven by service design and customer experience.

Engaging our creativity

Recent international studies have shown that a major explanatory variable for productivity differences between firms, and between countries, is management capability.

It is noteworthy that Australian managers lag most behind world-best practice in a survey category titled “instilling a talent mindset”. In other words, how well they engage talent and creativity in the workplace.

Most organisations today would claim that “people are our greatest asset”, but much fewer provide genuine opportunities for participation in the decisions that affect them and the future of the business. Those that do are generally better positioned to outperform competitors and demonstrate greater capacity for change.

More survey work on this issue is under way.

A more inclusive approach

Wages are also related to productivity but not always in the way that is commonly assumed. It is said that productivity performance determines the wages a company can afford to pay, with gains shared among stakeholders, including the workforce.

But evidence is emerging that causation might equally run in the reverse direction, with wage increases driving capital investment and efficiency.

This casts the current debate on productivity-enhancing reform in a very different light. It may now be a stretch to argue that corporate tax cuts will be much of a game-changer in the absence of any incentive to invest in new technologies and skills. The same may be said about the ideological insistence on labour market deregulation, if all that results is a low-wage, low-productivity economy.

The populist revolt against technological change and globalisation has its roots not just in the failure to distribute fairly the gains from productivity growth, but in a longstanding effort in some countries to fragment the structures of wage bargaining and to exclude workers from any strategic role in business transformation. This has assigned the costs of change to those least able to resist, let alone benefit from it.

The next wave of productivity improvement, if it is to succeed, must be based on a more “inclusive” approach to innovation policy and management.

The ConversationAs jobs change or disappear altogether, Australia’s workforce can make a positive contribution. But workers will only be able to do so if they have the skills and confidence to take advantage of new jobs and new opportunities in a high-wage, high-productivity economy.

Roy Green, Dean of UTS Business School, University of Technology Sydney

This article was originally published on The Conversation. Read the original article.

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Vital Signs: dismal wages growth makes a joke of budget forecasts



File 20170518 12226 1d3qe01
Pay packets rose just 0.5% in the first quarter.
bradleypjohnson/Flickr, CC BY-ND

Richard Holden, UNSW

Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies. The Conversation

This week: investor loans continue to rise, unemployment ticks down, wages growth remains distressingly low, and consumers are unconvinced the budget will improve their financial situation.


https://datawrapper.dwcdn.net/UKhAL/1/

Now that Australia’s two major political parties (and the Greens) have decided that robbing banks is legitimate public policy, we return our focus to how the Australian economy is actually functioning.

ABS data released Monday showed that investor housing loans rose slightly, up 0.8% on the previous month. The really interesting figures on this front are still to come, since the Australian Prudential Regulation Authority announced tighter macro-prudential measures – especially on interest-only loans – at the end of March. There are already some anecdotal suggestions that these have started to dampen investor demand, but there is no proper evidence yet. The next round of ABS housing finance data will certainly provide some clues.

The ABS also reported this week that first quarter wage growth was distressingly low, with pay packets rising just 0.5%. That puts private-sector annual wages growth at 1.8%. The main concerns here are, of course, for workers struggling to get by and the fact that rising levels of income inequality are not being dented by robust wage growth.

Added to this, however, is the impact of low wage growth on the budget, and the economy more generally. The RBA has pointed out in recent months that around one-third of mortgage holders have less that one month’s repayment buffer. As the cost of living keeps rising, but wages don’t, people with close to no wiggle room get squeezed more and more.

Last week’s budget, and the forecast return to surplus in 2020-21, was predicated in no small part on very robust wage growth.

On budget night I wrote that these wage growth assumptions were bullish and unlikely to eventuate. 3% going to 3.75% annual wage growth looks really aggressive against a stagnating 1.8 – 1.9% (counting the public sector’s slightly stronger growth). When wage growth is lower than it has been since the mid 1990s, how can one forecast with a straight face that the growth rate will double?

Ratings agency Standard & Poor’s certainly understands this. It almost grudgingly reaffirmed Australia’s AAA credit rating this week, but cast doubt on the projected return to surplus, saying “budget deficits could persist for several years, with little improvement, unless the Parliament implements more forceful fiscal policy decisions”.

Figures released Thursday showed the unemployment rate fell from 5.9% to 5.7%. This is seemingly good news, although this ABS series has been notoriously unreliable in recent times.

The workforce participation rate was steady at 64.8% – and this may be a better and more relevant measure of short-term fluctuations in employment.

There was also a continued shift to part-time employment. Total jobs were up 37,400, but people in full-time work fell by 11,600 and the number of part-time jobs was up 49,000.

Consumer confidence weakened a little in May according to the Westpac-Melbourne Institute Index. It was down a point to 98.0 in May (recall that for indices like these 100 is the level at which optimists and pessimists are in equal supply).

Westpac chief economist Bill Evans said:

Respondents’ confidence in housing and the outlook for house prices deteriorated sharply, while the assessment of the budget around the outlook for family finances was decidedly weaker.

And why wouldn’t it be? The budget contained essentially nothing to address the housing affordability crisis, further fuelling concerns that there will be a messy correction to prices.

Meanwhile, the government’s best ideas for how to grow wages and incomes were to waive a white flag about spending restraint, whine about how the Senate won’t pass their legislation (“this is a Senate tax”, said the treasurer on budget day), and launch a populist attack on our five largest banks.

And that attack – the bank tax – will be passed on to consumers, just like the last increase in regulatory capital required by APRA.

So the government raised the taxes of most Australians and blamed the cross-bench. That doesn’t fill me with confidence. And it seems I am not alone.

Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

This article was originally published on The Conversation. Read the original article.

Shifting the tax burden to middle-income earners will undermine jobs and growth


Patricia Apps, University of Sydney

The government’s idea of raising the Medicare levy, while also removing the 2% budget deficit levy on incomes above A$180,000, is less “transformational” and more signature Liberal policy. It shifts the tax burden towards middle income earners, as opposed to Labor’s plan to direct higher tax rates towards higher income earners. The Conversation

Rather than introducing a simple flat rate rise of 0.5% in the marginal tax rate across all taxpayers, the government has chosen to increase the Medicare levy. The reason lies in the fact that the levy contains the equivalent of a low-income tax offset due to the phasing out of the low-income exemption.

For example, in the current financial year, the thresholds for the phasing out of the Medicare levy exemption is A$21,665 for singles and A$36,541 (plus A$3,356 for each dependent child/student) for families. At these thresholds, tax rates rise by the rate of the withdrawal of the exemption, which works out to be 8% (calculated as 10% less the 2% Medicare levy rate).

In the case of a two-child family, this means an 8% rise in the marginal tax rate at an income from A$43,253, to an upper income limit of A$51,803. If a Medicare levy increase of 0.5% were introduced in the current tax year, the upper income limit for the higher marginal tax rate would rise to A$54,066.

In combining a rise in the Medicare levy with the removal of the budget deficit levy, the government is therefore proposing a rise in marginal tax rates across a wide band of middle incomes and a marginal tax rate cut for the top.

This direction of tax reform is a continuation of the incremental shift in the overall tax burden towards middle income earners over recent decades. And because the threshold for the Medicare levy exemption is based on family income, the reform will reinforce the move towards higher effective tax rates on low income second earners in a family.

This shift in the tax burden from top to middle income earners, and to middle income families, will undermine aggregate demand and, in turn, “jobs and growth” in the future.

In contrast to the government’s policy, Labor’s policy limits the rise in the Medicare levy to incomes above the top two bracket points and retains the budget deficit levy. Raising taxes on top incomes is not only a fairer policy, but a more efficient one in the conventional economic sense.

The impact of taxes on hours worked declines as earnings get higher, and has close to no effect on the hours worked by those with top incomes. And by avoiding higher taxes on second family earners, Labor’s policy should have a less negative effect on second earner hours of work and therefore the tax base.

The government’s and Labor’s tax reforms therefore represent very different policies.

Patricia Apps, Professor of Public Economics, Faculty of Law, University of Sydney

This article was originally published on The Conversation. Read the original article.

Growth of Muslim Populations in Europe Map


TIME

[time-interactive id=europe_radical_islam]

The recent terrorist attacks in Paris have brought new attention to the small number of European Muslims who turn to violent extremism. Fears center around the number of Europeans who have fought in Iraq and Syria and could return to the continent. Amid tensions over terrorism and intolerance in France, the Muslim population there is projected to grow steadily in the coming years in comparison to non-Muslim populations and in many other European counties. Demographic changes, including lower birthrates for non-Muslim Europeans, are contributing to the changing face of Europe’s religious and ethnic make-up. The above map shows historical data and projections for the growth of Muslim populations in Europe in 2030.

Methodology
Population estimates from Pew Research Religion and Public Life Project. According to the methodology in the organization’s report, the 1990 figure for France and several other countries maybe be artificially low. Estimates for the number…

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The Continued Growth of Pentecostalism


The link below is to an article that takes a look at the continued growth of Pentecostalism.

For more visit:
http://www.christianitytoday.com/edstetzer/2014/november/why-are-pentecostals-growing.html

Growth in Christian Persecution Worldwide


The link below is to an article reporting on the growth of persecution around the world.

For more visit:
http://www.commdiginews.com/world-news/worldwide-christian-persecution-is-increasing-and-is-largely-ignored-21687/

The need for speed: Why broadband network upgrades are critical to economic growth


Gigaom

Much like the debate over whether raising the US federal debt ceiling is the right choice for the country, the networking industry all too regularly engages in a debate about whether the need for faster data connections is real. The significant role of broadband as an economic driver deserves to be elevated to a similar level of attention as progress and innovation are stifled when network capacity is constrained, which doesn’t bode well for consumers, businesses, research communities and the economy on the whole.

High-speed, high-capacity networks are critical to our future because they power the world’s Internet and digital economy. For the most part, networks based on 100G technology have become mainstream to address current demands – and this represents a giant leap forward from traditional network architectures and scale. However, it won’t be long before we need to go beyond 100G and even 400G and start to build…

View original post 931 more words