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Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November 2012 Productivity in Australian Manufacturing: Some preliminary results

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Page 1: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission

Paula Barnes

Productivity Analysis Branch

Productivity Commission

PC-ABS Productivity Perspectives Conference, Canberra 20 November 2012

Productivity in Australian Manufacturing:

Some preliminary results

Page 2: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 2

MFP for manufacturing and the market sector

Data source: ABS (Cat. no. 5260.055.002, 2010-11)

1985-

86

1986-

87

1987-

88

1988-

89

1989-

90

1990-

91

1991-

92

1992-

93

1993-

94

1994-

95

1995-

96

1996-

97

1997-

98

1998-

99

1999-

00

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

60

70

80

90

100

110

120

MFP Manufacturing

MFP Market sector (12 industries)

Index 2009-10 = 100

Page 3: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 3

MFP for manufacturing and the market sector over cycles

Data source: ABS (Cat. no. 5260.055.002, 2010-11)

1988-

89

1993-

94

1998-

99

2003-

04

2007-

08

2010-

11

60

70

80

90

100

110

120

Mfg 0.0Mkt 0.9

Mfg 0.6Mkt 2.5

Mfg 1.3Mkt 1.2

Mfg -1.4 Mkt 0.0

MFP Manufacturing

MFP Market sector (12 industries)

Av. annual growth

Incomplete cycle

Mfg -0.8

Mkt -1.0

Cycle 1 Cycle 2 Cycle 3 Cycle 4

Index 2009-10 = 100

Page 4: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 4

Large decline in Manufacturing MFP growth between the last 2 complete cycles

Data source: ABS (Cat. no. 5260.055.002, 2010-11)

1998-99 to 2003-04 2003-04 to 2007-08 difference between cycles-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Manufacturing MFP growth (average annual % growth by productivity cycle)

Cycle 3 Cycle 4

1.3

-1.4

-2.7

Page 5: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 5

Less negative MFP growth in the incomplete period

Data source: ABS (Cat. no. 5260.055.002, 2010-11)

2003-04 to 2007-08 2007-08 to 2010-11 difference between pe-riods

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Manufacturing MFP growth (average annual % growth by productivity cycle)

Cycle 4 Incomplete cycle

-1.4

-0.8

0.6

Page 6: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 6

What does negative MFP growth mean?

• Technological regress?

• Compositional effects?

• New impediments; new standards?

• Producers making poor decisions?

• Adjustment?

• Measurement issues?

Page 7: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 7

Approach to analysis

• Aggregate manufacturing − Proximate causes of MFP growth

(growth in VA, K, L)

• Subsectors within manufacturing− Main contributors to aggregate decline− Proximate causes of MFP growth− Possible influences on the main

contributors

Page 8: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 8

Proximate causes of the MFP growth decline in manufacturing

Data source: ABS (Cat. no. 5260.055.002, 2010-11)

1998-99 to 2003-04 2003-04 to 2007-08 Difference between the cycles

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

Value added growth Weighted hours worked growth Weighted capital services growthMFP growth

Cycle 3 Cycle 4

Growth in VA, inputs and MFP(average annual % growth by productivity cycle)

Page 9: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 9

Subsector MFP estimates

• Manufacturing divided into 8 subsectors (still diverse in activities) • Food, beverage & tobacco products (FBT)• Textile, clothing & other mfg (TCO)• Wood & paper products (WP)• Printing & recorded media (PRM)• Petroleum, coal, chemical & rubber products (PCCR)• Non-metallic mineral products (NM)• Metal products (MP)• Machinery & equipment mfg (ME)

• Data and methodological limitations

Page 10: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 10

… how does MFP growth vary across subsectors?

Food, beverage & tobacco products (FBT)

Petroleum, coal, chemical & rubber products (PCCR)

Printing & recorded media (PRM)

Textile, clothing & other manufacturing (TCO)

Wood & paper products (WP)

Metal products (MP)

Machinery & equipment manufacturing (ME)

Non-metallic mineral products (NM)

Total manufacturing - ABS

-6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0

Cycle 3: 1998-99 to 2003-04 Cycle 4: 2003-04 to 2007-08

% per year

Data source: Authors’ subsector estimates (preliminary); Total manufacturing ABS (Cat. no. 5260.055.002, 2010-11)

Page 11: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 11

Change in subsector MFP growth between cycles 3 and 4

Printing & recorded media

Petroleum, coal, chemical & rubber products

Textile, clothing & other manufacturing

Food, beverage & tobacco products

Total manufacturing (ABS)

Metal products

Machinery & equipment manufacturing

Non-metallic mineral products

Wood & paper products

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

-9.3

-4.7

-4.1

-3.7

-2.7

-2.3

-1.8

-1.4

-0.1

Change in average annual % growth

Data source: Authors’ subsector estimates (preliminary); Total manufacturing ABS (Cat. no. 5260.055.002, 2010-11)

Page 12: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 12

Manufacturing subsector sizes(Shares of gross value added at basic prices 2009-10)

Data source: ABS (5204.0, 2010-11)

Food, beverage and tobacco products 22%

Metal products 20%

Machinery and equipment 18%

Petroleum, coal, chemical and rubber products 17%

Wood and paper products 7%

Textile, clothing and other manufacturing 7%

Non-metallic mineral products 5%

Printing and recorded media 4%

Page 13: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 13

Subsector contributions to the decline in mfg MFP growth between the cycles 3 and 4

Data source: Authors’ estimates (preliminary)

Petroleum, coal, chemical & rubber products

Food, beverage & tobacco products

Metal products

Textile, clothing & other manufacturing

Printing & recorded media

Machinery & equipment manufacturing

Non-metallic mineral products

Wood & paper products

-1 -0.8 -0.6 -0.4 -0.2 0 0.2

-0.81

-0.73

-0.42

-0.40

-0.35

-0.32

-0.07

0.0

Percentage point change in contribution

Page 14: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 14

Differing contributions to the proximate causes of the aggregate MFP decline

Data source: Authors’ estimates (preliminary)

FBT PCCR MP Rest of Manufacturing (5 Subsectors)-1.5

-1.0

-0.5

0.0

0.5

1.0

Value added Labour Capital MFP

Contributions to change in growth in aggregate manufacturing output, inputs and MFP between cycle 3 and cycle 4 (percentage points)

Page 15: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 15

Metal products (MP)

Data source: Authors’ estimates (preliminary) based on ABS data

1998-99 to 2003-04 2003-04 to 2007-08 Difference between the cycles

-5

-4

-3

-2

-1

0

1

2

3

4

5

value added growth weighted hours worked growth weighted capital services growthMFP growth

% per year

Cycle 3 Cycle 4

Page 16: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 16

Food, beverages and tobacco products (FBT)

Data source: Authors’ estimates (preliminary) based on ABS data

1998-99 to 2003-04 2003-04 to 2007-08 Difference between the cycles

-5

-4

-3

-2

-1

0

1

2

3

4

5

value added growth weighted hours worked growth weighted capital services growthMFP growth

% per year

Cycle 3 Cycle 4

Page 17: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 17

Petroleum, coal, chemicals, and rubber products (PCCR)

Data source: Authors’ estimates (preliminary) based on ABS data

1998-99 to 2003-04 2003-04 to 2007-08 Difference between the cycles

-5

-4

-3

-2

-1

0

1

2

3

4

5

value added growth weighted hours worked growth weighted capital services growthMFP growth

% per year

Cycle 3 Cycle 4

Page 18: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

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• Less value adding − Declining domestic feedstock− Trend in importing refined fuel− Underutilised capacity

• Significant investment due to Cleaner Fuels Program − Higher quality fuels not fully reflected in

productivity measures

Influences on PCCR – Petroleum

Page 19: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

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• Diverse subdivision− Including plastics, paints, foam rubber,

adhesives and tyres

• Mixed influences − Greater import competition in plastics and

tyres− Increased demand from construction

‘boom’

Influences on PCCR – Polymers and rubber

Page 20: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 20

• Very diverse subdivision− Industrial gases, fertilisers,

pharmaceuticals, cosmetics and cleaners (to name a few)

• Agricultural and mining related products− Strong demand growth− Investment to expand capacity, but slow

response in output – long lead times

Influences on PCCR – Chemicals

Page 21: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 21

• Pharmaceutical products− Strong output growth and very strong

export growth− Between the productivity cycles, a

decline in investment and employment− Substantial increase in R&D

expenditure

Influences on PCCR – Chemicals (cont’d)

Page 22: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

Productivity Commission 22

Three main subsectors have differing proximate causes of MFP decline

Data source: Authors’ estimates (preliminary)

FBT PCCR MP-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Value added Labour Capital MFP

Contributions to change in growth in aggregate manufacturing output, inputs and MFP between cycle 3 and cycle 4 (percentage points)

Page 23: Productivity Commission Paula Barnes Productivity Analysis Branch Productivity Commission PC-ABS Productivity Perspectives Conference, Canberra 20 November

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Summary and ongoing research

• Summary− Diversity− Multiple influences

• Ongoing research− Further work on influences− Linking the disaggregated picture with

the aggregate estimates