I’ve been looking at an interesting report from the National Office for the Information Economy on Productivity Growth in Australian manufacturing (PDF file). Released with no fanfare (not even a press release) recently, it presents results which accord with everyday observation, but not with the ideological assumptions that dominate the policy debate in Australia. The approach used was to examine labour productivity growth in a wide range of manufacturing industries and use regression analysis to explain differences in rates of productivity growth. By far the most important factor was the use of advanced information and communications technology, with additional explanatory power being gained when the education level of the workforce was taken into account. Claims that reductions in tariffs would expose inefficient industries to the “cold wind of competion” (or sometimes the “hot blast”), forcing them to increase productivity and therefore induce dynamic efficiency gains got no support. The coefficient on the associated variable was both economically and statistically insignificant (negative in most cases) .
A notable technical feature is the point, which has been emphasised by Brad de Long that it’s not appropriate to focus on multifactor productivity when most technological progress is embodied in capital items with rapidly declining prices, such as computers.
fn1. A mildly surprising result in view of the Thatcher effect, by which average productivity is automatically increased when inefficient factories close.