NO.053

OECD EMPLOYMENT OUTLOOK 2007

Last night the OECD released their Employment Outlook for 2007, which included a study of the effect of labour market policies on productivity.  The study provides support for the Government’s labour market policies, which are aimed at promoting job opportunities for all Australians.

The OECD finds that while employment growth tends to initially lower average measured productivity growth, this does not mean that higher employment causes the productivity of individual workers to fall.  The OECD states that this “… arises because, other things being equal, policy reforms which increase employment can promote job opportunities for low-skilled workers, generate diminishing returns to labour input or expand labour-intensive activities, thereby exerting downward pressure on average measured labour productivity.”

However, as the OECD goes on to say, “…any slowdown in average measured productivity resulting directly from a change in employment is, to a large extent, a statistical artefact and does not imply that individual productivity has fallen.”

The OECD makes the important point that “…pro-employment policies are unlikely to lower productivity among existing workers.  Moreover, even taking into account a temporary reduction in aggregate productivity due to the fact that pro-employment policies will help more low-skilled get a job – thus depressing aggregate measured productivity – pro‑employment policies will often raise GDP per capita.”

The report represents another blow to the Labor leader Kevin Rudd’s credibility when it comes to understanding one of the key drivers of Australia’s $1 trillion economy.

Mr Rudd’s attacks on the Government over productivity have severely embarrassed him since it was revealed that his own advisers were required to tutor him on productivity after he was unable to answer questions on the subject on radio last week.

CANBERRA

20 June 2007

Contact: David Gazard – 02 6277 7340