Treasury Policy Perspectives Graeme Davis Macroeconomic Policy Division

Treasury’s 3 Ps Framework Proportion of population of working agePopulation GDP per hour worked multiplied by Productivity Participation rate multiplied by 1 – unemployment rate multiplied by Average hours worked multiplied by Participation GDP per capita =

Australian GDP per capita as a per cent of the United States Comparisons of Australia with the United States GDP per capita % of US Source: Groningen Growth and Development Centre and The Conference Board (2004)

Comparisons of Australia with the United States GDP per capita % of US Source: Groningen Growth and Development Centre and The Conference Board (2004) Population and Participation % of US Australian hours worked per capita as a per cent of the United States

Comparisons of Australia with the United States GDP per capita % of US Population and Participation % of US Productivity % of US Australian GDP per hour worked as a per cent of the United States Source: Groningen Growth and Development Centre and The Conference Board (2004)

Australian industry productivity levels relative to the United States (1985) Index (US=100) Mining Accommodation, Cafes & Restaurants Cultural, Recreational, Personal & Other Services Education Construction Manufacturing Retail Trade Transport & Storage Health & Community Services Electricity Gas & Water Finance & Insurance Agriculture Communications Wholesale Trade Property & Business Services Government Administration & Defence Employment

Australian industry productivity levels relative to the United States (2001) Index (US=100) Mining Accommodation, Cafes & Restaurants EducationCultural, Recreational, Personal & Other Services Construction Manufacturing Trade Retail Transport & Storage Health & Community Services Electricity Gas & Water Finance & Insurance Agriculture Government Administration & Defence Communications Wholesale Trade Property & Business Services Employment

Context affecting Australia Internal geography Location Population History and historical linkages Natural endowments

Distance to World GDP AustraliaUnited Kingdom

Summary Current questions… Does Australia’s context limit our ability to close the productivity gap? To what extent can policy be used to close the productivity gap?