Australian Industry MFP: Measurement issues and initiatives Presentation to OECD Productivity Workshop, Bern, October 2006

Background Long history of MFP measurement Annual measurement of market sector MFP –12 industries Heightened interest in productivity in recent years Team established to develop official industry MFP estimates at division level Looking at all data quality and measurement issues

Average MFP growth rates

Industry MFP growth rates

Measuring capital inputs Key issues –Exogenous and endogenous rates of return –Choice of price deflator –Negative rental prices –Asset lives –Age efficiency profiles

Rates of return

Capital services: Mining

Capital services: Agriculture

Capital services: Retail

Measuring labour input Primary data source is Labour Force Survey –Measures actual hours worked –Covers employees and self-employed –But likely to be inconsistent with business surveys Considering using business survey basis but numerous data issues from an Australian perspective

Labour input industry shares

Labour input growth rates

Other measurement issues Aggregation – analysing contributions from industries to the total Choice of index number formula and consistency with GDP methods Defining growth cycles Interpreting the data – to what extent are the economic stories measurement created

Key lessons Presentation of data is important in giving messages MFP results can be sensitive to small changes in assumptions that dont affect the interpretation of the input series Understanding the robustness of the data is critical There are clear benefits to the core national accounts of exposing the data within a growth accounting fraemwork