Productivity decline in Australian coal mining

A recent Australian Productivity Commission Staff Working Paper has estimated a 25 % decline in value added total factor productivity in Australian coal mining over the period 2000/2001–2006/2007. The decline coincides with a period of rapidly increasing global demand for, and price of, coal, which has made it economically feasible to mine coal that was previously uneconomic. This “digging deeper” hypothesis is plausible, although our initial surprise at the magnitude of the estimated decline has motivated our investigation of productivity in Australian coal mining, its financial implications and its likely causes. We begin by applying the Staff Working Paper methodology to revised data to estimate the magnitude of the decline. This exercise shrinks the estimated magnitude of the decline to 21 %. We continue by applying an alternate methodology to the revised data to re-estimate the magnitude of the decline. This exercise generates no further change to the estimated rate of decline. We then compare estimates of the decline obtained from value added and gross output frameworks, and we find a considerable shrinkage in the estimated productivity decline that highlights the importance of the Domar factor in productivity measurement. We continue by exploring the financial consequences of the productivity decline. We conclude by joining the search for sources of the productivity decline. Copyright Springer Science+Business Media New York 2013