Can Australia Match US Productivity Performance?

The Productivity Commission released a Staff Working Paper ‘Can Australia Match US Productivity Performance?’ (by Ben Dolman, Dean Parham and Simon Zheng) in March 2007. The paper considers whether it is feasible for Australia to match the US level of productivity. While other countries have caught up with — and even surpassed — US productivity, Australia’s catch-up has been comparatively modest and patchy. International comparisons of productivity are useful, but also have hazards. Countries’ productivity levels can vary for reasons apart from technology and efficiency. It is more meaningful to compare performance at the industry level. Some Australian industries have kept pace with their US counterparts at the productivity frontier. Other industries appear to have maintained sizeable gaps or even fallen further behind US productivity levels, in particular in manufacturing, wholesale and retail trade, utilities, communications and finance. The paper considers the extent to which geography, settlement and education have constrained, and will continue to constrain, Australia’s ability to catch up in these industries and overall. The paper concludes that Australia is well placed to keep pace with resurgent US productivity growth. It is feasible for Australia to do even better and to catch up to some extent on US productivity — although it will not be automatic and may require further policy and institutional change. But the level of US productivity should not be regarded as a target which Australia can realistically achieve over coming decades. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.