A new report into manufacturing has found that the drop in the sector’s productivity has occurred mainly in three subsectors.
The study was completed by the Productivity Commission. It found that Petroleum and chemicals, Food and beverages, and Metal products collectively accounted for two-thirds of the problem.
Over the long term, investment in manufacturing has risen, but nevertheless hours worked (and therefore, broadly, jobs) have declined. Manufacturing’s multifactor productivity – a measure of innovation, technology and other factors affecting productivity – has been declining since 2003-04.
The Staff Working Paper, Productivity in Manufacturing: Measurement and Interpretation, by Paula Barnes, Leo Soames, Cindy Li and Marcelo Munoz unpacks the ABS estimates of multifactor productivity for manufacturing.
The authors found that there was no overarching systemic reason for the decline in manufacturing’s rate of multifactor productivity growth to -1.4 per cent a year over the last complete productivity cycle (2003-04 and 2007-08), compared with 1.3 per cent a year over the previous cycle (1998-99 to 2003-04).
The three worst-performing subsectors – Petroleum and chemicals, Food and beverages, and Metal products – collectively accounted for two-thirds of this decline between cycles.
In these three subsectors, there was a diverse range of influences, including a lag between new capital investment and the output from that investment.
Also, additional investment in petroleum refining to meet new environmental standards improved the quality of outcomes but did not raise output, and the benefits of which are not reflected in productivity measures.
And there was reduced capacity utilisation in response to factors such as the appreciation of the Australian dollar and changing competitive conditions.
Consumer preferences were also found to have played a part. For example,smaller-scale bakeries have grown in popularity in recent times. Such businesses are more labour intensive than larger scale operations and therefore less productive.