The article "Low productivity growth a statistical illusion" by Michael Knox (AFR 18 May 2007) is based on a flawed approach to measuring productivity and consequently the results of the analysis are misleading. It is possible to construct real measures of income by deflating GDP using a general price index such as the CPI, but such real measures of income are not appropriate for the analysis of productivity. Labour productivity is the amount of physical output for each unit of labour input. The ABS measures the volume of goods and services produced (GDP) in Australia by deflating all relevant production using appropriate price indexes. Export prices are included in the deflator because exports are a component of Australia's production, and not "because a bunch of people sat around in the early 1980's and decided to do it this way." The methods used by the ABS align with international best practice as implemented by almost all countries in the world.
Deputy Australian Statistician
Economic Statistics Group
ABS responds to "Low productivity growth a statistical illusion" (Australian Financial Review 18 May 2007)