SPOTLIGHT: IMPACT OF THE LABOUR ACCOUNT ON PRODUCTIVITY ESTIMATES
Labour inputs are an important component for measuring productivity, both Multifactor Productivity and Labour Productivity. The Labour Account provides a conceptual framework to produce a coherent and consistent set of aggregate labour market statistics, such as improved measures of hours worked. This article describes the impact of the Labour Account on productivity estimates for the market sector aggregate and 16 market sector industries. The Industry spotlight section covers more in-depth analysis for industries where the differences in hours worked are most pronounced.
Estimates of labour productivity for industries require industry data from various sources, such as the Australian System of National Accounts (ASNA) and the Labour Force Survey (LFS). Data from the ASNA is primarily sourced from business surveys and the LFS completed by households. This can result in scope differences in industry output, including hours worked. Scope adjustments are applied in the Labour Account for unpaid contributing family workers, short term migrant workers and children under 15. This allows for improved coherence between industry hours worked and industry output. For more information about the adjustments in Labour Account, see 6150.0 - Australian Labour Account: Concepts, Sources and Methods, June 2018.
The LFS reports hours worked in a person’s main job, as well as in all jobs. However, the hours worked by industry are allocated on the basis of a person’s main job. The Labour Account, while maintaining consistency with the total number of hours worked, reallocates hours worked among industries to account for secondary job holders. This approach improves the alignment of industry output and labour inputs, thereby improving the quality of productivity estimates.
The analysis below shows the comparison made between two alternative estimates of labour productivity growth for the market sector aggregate and each of the 16 market sector industries (footnote 1). In each case, the same measure of output (i.e. industry Gross Value Added, or GVA) is used. The differences between the two labour productivity estimates reflect the differences in the hours worked measures used (footnote 2). In the first measure, the LFS estimates of hours worked are utilised. These hours worked estimates underlie the industry labour productivity estimates, published in Table 6 (Labour Productivity) of Estimates of Industry Multifactor Productivity, 2016-17 (cat. no. 5260.0.55.002). The other estimates of hours worked are sourced from the Labour Account Australia, Quarterly Experimental Estimates , September 2017 (cat. no. 6150.0.55.003), which cover hours worked of the market sector industries for the period of 2010-11 to 2016-17.
While the impact of the Labour Account experimental estimates on labour productivity is relatively small (averaging 0.06 per cent per annum) for the market sector aggregate, differences in labour productivity vary significantly across industries (as shown in Chart 1 below).
Chart 1: Estimates of industry labour productivity change, annual average for 2011-12 to 2016-17
Large productivity differences for the period were found in Agriculture, forestry and fishing, Electricity, gas, water and waste services, Information media and telecommunications and Financial and insurance services. As a result of differences between the hours worked series stronger productivity growth was observed in seven industries, whereas weaker labour productivity growth was observed over nine industries.
Annual growth rates of hours worked and labour productivity movements for Electricity, gas, water and waste services and Financial and insurance services produced noteworthy differences.
Electricity, gas, water and waste services
Electricity, gas, water and waste services saw one of the largest differences on labour productivity growth when hours worked is sourced from the Labour Account. While the LFS hours worked recorded a decline (1.5 per cent per annum) during 2010-11 to 2016-17, the Labour Accounts presented a 0.8 per cent yearly gain in hours worked. These alternative labour inputs result in a decline in labour productivity (0.4 per cent per annum), as opposed to a solid labour productivity gain (1.9 per cent per annum) published for the period 2010-11 to 2016-17.
Chart 2.A: Hours worked movement, 1990-91 to 2016-17
Chart 2.B: Labour productivity movement, 1990-91 to 2016-17
Financial and insurance services
Among all industries, the largest positive difference in labour productivity growth was observed in Financial and insurance services, reflecting a much flatter growth in the Labour Account hours worked. LFS hours worked recorded an increase (1.6 per cent per annum) during 2010-11 to 2016-17, while the Labour Accounts presented almost no annual growth in hours worked. This change in hours worked growth translated into higher growth in labour productivity. Average labour productivity growth was raised from 2.0 to 3.7 per cent per annum during 2010-11 to 2016-17.
Chart 3.A: Hours worked movement, 1990-91 to 2016-17
Chart 3.B: Labour productivity movement, 1990-91 to 2016-17
Drawing on the strengths of both household and business surveys, the development of the Labour Account provides an important improvement in the quality of industry labour input. Productivity statistics are an area that can directly benefit from the development of the Labour Account through increased coherence of industry hours worked and industry output. With further developments, such as a backcast of annual data, Labour Account hours worked data can potentially replace the current Labour Force industry estimates in productivity statistics. The LFS reports hours worked in a person’s main job as well as in all jobs. However, the hours worked by industry is allocated on the basis of a person’s main job. The Labour Account, while maintaining consistency with the total number of hours worked, reallocates hours worked among industries to account for secondary job holders. This approach improves the alignment of industry output and labour inputs, thereby improving the quality of productivity estimates.
1. The estimates of hours worked in the Labour Account also impact industry MFP, which is determined by the labour income shares.
2. The analysis is based on GVA based labour productivity where no quality adjustment is made to labour input.