The government and its supporters are currently putting a lot of effort into trying to discredit workplace reforms. They claim that work choices, or individual contracts, it doesn’t appear to matter which, actually decreased productivity, and therefore living standards, or had no effect on it.
The latest offering is from David Peetz Shopping around a productivity lie.
But it is a bit rich to accuse your opponents of lying when your own analysis is so flawed. As a university professor he ought to be held to a higher standard than a politician, businessman or union leader.
The major problems with Peetz’s offering, apart from its pejorative tone, is that he shifts between different ways of measuring productivity so as to suit his argument and that his statistical analysis is also quite incompetent.
He starts by pointing out that:
Labour productivity is the quantity of output (say, the number of meals produced by a restaurant’s staff) divided by the quantity of hours worked (in producing those meals).
Nor is productivity about the price of the product.
Well, not if you use the number of widgets produced per hour of effort definition, but that is not how national productivity is measured. It can’t be as there is no way you could find enough statisticians to put in all the workplaces to measure changes in output of widgets versus input of labour.
So we essentially measure national productivity by taking hours in-putted against GDP out-putted, and it is this measure that Peetz uses to “demonstrate” that work choices had no effect on productivity.
But in fact prices do have an effect on this measure of productivity, so the good professor’s argument is based on a fallacy. If my mum made this mistake, I’d put it down to lack of expertise. In Peetz’s case he doesn’t have that alibi. If he wants to accuse others of lying it is fair enough that he face the same charge.
But it gets worse. Because national productivity does depend to some extent on the prices one receives for goods, there are obviously a huge range of factors that can affect it. A depreciation of the dollar, for example, by making it easier for exporters and export competing businesses to charge higher prices, can give you a productivity boost, while producing no more widgets per hour worked.
There are other non-price issues that may effect productivity. Retrenching workers can also give you higher productivity. This may be an effect of a down-turn in the economy, or ironically, higher wages leading to a company investing in capital and shedding labour.
Productivity may also drop as a function of heavy up-front capital investment as part of a start-up phase, which is not expected to return until some time in the future – the reason why the mining industry is currently having a negative effect on productivity despite its extremely high levels of productivity as measured by GDP per hour worked.
Productivity will also be affected by increases in education as workforces move out of manufacturing into more white collar occupations and import their manufactures from overseas.
If Peetz were interested in the truth he would try a multi-factorial analysis trying to disentangle which of these forces may have effected productivity; trying to find a statistically rigorous link between one or more of them and changes in productivity.
Instead of that he takes just one factor, takes no account of what percentage of the economy was actually affected by it, and points to a few spots where growth in productivity slows and says that as people were talking about workplace reform at the same time as growth in productivity stalled that this proves workplace reform has no effect.
Productivity isn’t everything. If you Google David Peetz you will find that he appears to be highly productive as measured by the widget definition – lots of papers. But it’s quite possible to be a prolific widget maker and have a negative impact on the economy if none of your widgets is usable. Peetz appears to be this sort of widget maker, and it ill behoves him to cast aspersions on others.