Working Papers

The Productivity ‘Puzzle’

The productivity ‘puzzle’ has bothered economic policymakers in Australia for some time now:  employment growth has outstripped what we would normally expect to see based on recent GDP growth, implying declining productivity growth.  As RBA Governor Stevens indicated in his testimony to the House Economics Committee last week, there are dozens of possible interpretations of this ‘puzzle,’ but few that seem entirely plausible or persuasive. 

As the following article from Statistics Canada notes, the productivity ‘puzzle’ is not an unusual phenomenon and one that is shared by countries that have recently experience favourable terms of trade shocks:

Nor is it unusual for Organisation for Economic Co-operation and Development (OECD) countries to experience two (or more) years of little productivity growth. Just since 2000, 10 of the 29 OECD countries for which data are available experienced such an episode. Interestingly, Norway and Australia are both currently experiencing little or no growth in output per employee, and like Canada, both have large natural resource bases, which is the source of much of the productivity slowdown in Canada.

If the productivity ‘puzzle’ is ultimately attributable to the positive terms of trade shock, then it may not be something over which policymakers should lose much sleep.

posted on 26 February 2007 by skirchner in Economics, Financial Markets

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The Canada Statistics article offered several reasons why productivity is down in Canada, all of them specific to Canada.  My take is that there is an increase in employment to develop more production (ie oil sands), without a immediate increase in output due to lag effects.  I would assume it’s a similar situation in the other resource rich countries.  Is that your take?

Posted by cb  on  03/01  at  03:33 AM

Yes, the resources in question are slightly different, but the same issues arise. Mining investment in Australia grew a staggering 99% in real terms in the year to March 06, but the additional output flowing from that investment will take time to be realised.

Posted by skirchner  on  03/01  at  09:59 AM

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