Activity 12(a)

1.  Productivity is a measure of the output that is generated from a of ways but one of the most common ways is to divide the total production of an economy (or individual business) by the total hours worked (this gives a measure of labour productivity). Therctore it could be measured by real GDP per hour worked. Capital productivity could also be used which would look at total output relative to the number of machine hours used. Economists are also interested in multi-factor productivity which shows how the combination of labour and capital can influence the amount produced per hour.

2. If productivity increases, then businesses are able to produce a ercater volume of goods and services with the existing resource. This means that theit ability and willingness to supply ean increase and the economy’s potential output can be expanded. Productivity growth will be associated with falling unit costs for the goods and services that are produced. If a greater volume of production can be achieved from existing resources and wages and other casts den’t increase by the same percentage then cost per unit tends to fall. This may encourage firms to pass on the savings to consumers who (responding to the law of demand) may use their income to purchase a greater volume of goods and services. Lower production costs in Australia may also increase the international competitiveness of local firms and this might result in greater sales of exports and movement away from imports. Overall,productivity therctore helps to increase AD, real GDP, thereby boosting long term economic growth given that growth is low inflationary and therefore more sustainable. The economic prosperity of Australians, on average, will be enhanced as incomes and purchasing power will be higher.

3. The PC notes that the wellbeing of Australians is dependent on persistent growth in productivity. When productivity rises, all incomes eventually rise, particularly when effective redistribution and social place. It is also notes that for the generation of people born in 2017,if long term productivity growth lifts sustainably by 0.5 per cent a year, over their person would be about six times its current size, or about 50 per cent bigger than if remains about average.

4. This is because these sectors of the economy are growing, making up a larger share of the economy. It therefore stands to reason that an increase these sectors will yield relatively larger benetits tor the economy compared to improvements in productivity in smaller sectors of the economy.

5. The following are examples:

  • Creating a business environment that is more conducive to innovation should lead to greater levels of innovation (e.g. stemming from increased research and) development) and result in breakthroughs that improve the way resource is our combined to produce goods and services
  • Replace stamp duty (a tax on the sale of land/houses) with a land tax (a tax on the value of the land) should encourage greater labour mobility as it becomes more cost effective to sell in one location and purchase in another. this should help to ensure that this inefficient aspect of the tax system no longer prevents workplaces or industries within some regions or areas of Australia from attracting workers in high demand, which ultimately helps to boost labour productivity.
  • Making it easy for all Australians of working age to access up-to-date careers information will help to ensure that workplaces or industries can more easily tap into skills on otter, and labour can more easily acquire the skills in high demand.
  • Using technology to help automate the dispensing of medications, like any labour saving technology, boosts productivity because the output (dispensation of medication) can be achieved more quickly and at a lower cost.

6. It means that lower commodity prices since 2011 have negatively impacted on national income, but that this negative impact will become smaller over time as commodity prices recover.

7. Stronger productivity growth means that the nation will be producing more goods and services with its resources (such as labour and capital). This exerts downward pressure on prices (as the AS curve shifts to the right) and encourages growth in AD and real GDP (e.g. as international competitiveness improves and net export growth increases). Given that existing resources, including labour, will be producing more output (and therefore income), it contributes to the growth in average incomes earned across the economy.

8. The policy options can help to lift productivity and aggregate supply in the following ways:

  • Strengthened competition policy should help to raise competitive pressures in markets and provide additional incentives for businesses to increase efficiency/productivity. This could include the uptake of new technology and/or the restructuring of organisations to achieve efficiency gains, both of which help to increase the supply potential of businesses and contribute to an increase in aggregate supply.
  • Better provision and pricing of transportation infrastructure might involve new and/or upgraded road, rail and ports infrastructure, which improves the productivity of the transport industry as goods can be transported domestically and internationally in less time and lower costs.

  • Developing a strong innovation culture means that Australian businesses and/or entrepreneurs are more likely to innovate as a way of boosting profits. This might involve businesses being more prepared to research and develop new ideas that enhance performance (e.g. develop new technologies) which ultimately has the potential to boost the average output from its resources and contribute to the growth in aggregate supply.

  • Providing incentives for Australians to work hard and/or become more entrepreneurial in their endeavours (e.g. via a lowering of income tax rates) should have a positive effect on both labour productivity and the emergence of new enterprises in various markets (helping to raise competitive pressures). Investing in high-quality education improves the potential output from certain members of the labour force, boosting labour productivity and once again helping to lift aggregate supply.