"Productivity is a key determinant of living standards, so its understanding is central to assessing economic performance and informing policy formulation," said Professor Kevin Fox, the organiser of the International Association for Research in Income and Wealth (IARIW) and UNSW conference on Productivity Measurement, Drivers and Trends.
At the conference RBA deputy governor Dr Philip Lowe said improving transport is crucial to economic growth and increasing Australia's economic competitiveness.
"I find it difficult to escape the conclusion that we are falling short in some areas, particularly in parts of our transportation system both private and public. Many of you have no doubt felt the frustration of moving around our cities," Dr Lowe said in a speech to the IARIW-UNSW Conference.
Dr Lowe said better public transport also helped ease the cost of housing. "When housing prices are high, it is largely because land prices are high. Now, we can't do much about the physical supply of land, but investment in transportation infrastructure by making it easier to move around the city can increase the supply of well-located land."
Professor Kevin Fox concurred. "Besides its direct impact on the productivity of firms, this means that underinvestment in transportation networks tends to put upward pressure on land and hence housing costs. This has major implications for the real estate sector, which represents a substantial share of the capital assets & savings of businesses and households. Plus it is a major influence on the performance of the economy. Understanding the links between infrastructure, land prices and housing is a current research theme being explored by the Real Estate Initiative of the Australian School of Business."
Dr Lowe also explained to the conference that the RBA is holding open the option of intervention to force the dollar down. ''In the past we have been prepared to intervene in the currency market when it was clear the currency market was misaligned or not working well. 'The threshold for intervention is very high, and it is not something that we would rule in or out.''
Also speaking at the conference was Denise Doiron, Head of the School of Economics, at UNSW's Australian School of Business. She explains that measuring productivity as a very complex process, but important for the economy. "At the macro level, the most popular measure of productivity is labour productivity: the output produced in the economy say in a year divided by the labour input used to produce the output. A more general measure is multifactor productivity which divides the output produced in the economy by all inputs (labour, capital, land and intellectual property) used in the production. The growth over time in these two productivity concepts essentially determines how much society's living standards are improving."
"Given the dramatic changes in the structure of production and the increasing importance of technology, it is important to develop and use practical measures of productivity that include all of the measures - effectively, we want to see how well as a country we are doing."
The IARIW-UNSW Special Conference was supported by the Australian School of Business, the Australian Bureau of Statistics, the Productivity Commission and the Australian Research Council.
Professor, Director of Centre for Applied Economic Research (CAER)
School of Economics