Peter Costello (Higgins, Liberal Party, Treasurer) Share this | Hansard source

I would ask the member for Lilley not to interject. Every time he interjects, I think of that old Al Jolson song, ‘Swanee—how I love ya, how I love ya’! Here is what the OECD reported on the correlation between more jobs and labour productivity:

There is a negative correlation—

listen to this—

between employment growth and average measured labour productivity growth, which suggests that evaluating the success of employment enhancing structural reforms by measuring labour productivity can be misleading.

What it is saying here is that, as you pull more people into the workforce as unemployment falls, particularly if you pull in people who are unskilled, because they are unskilled, rather than meeting the overall productivity of the workforce, they tend to have a negative effect. And they have a negative effect on the overall productivity of the workforce until such time as they have been in the workforce long enough to improve their skills, to move up to the averaged measure and eventually to increase it. That is why there is a negative correlation between increasing employment and labour productivity. In particular, the correlation is negative when unemployment is low and when, by definition, you are pulling into the workforce people of lower skills than you would be in the immediate aftermath of a recession, when you would be soaking up people who had been more recently put off.

This is what the OECD finds:

However, 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. Its implications for policy evaluation therefore are not immediately obvious.

Why do I mention that? Because anybody who thinks about it for a moment knows that, when you are pulling long-term unemployed into the labour market when unemployment is falling, people who do not have the same level of skill when they join the workforce will not have the same level of productivity. They will get it after years in the workforce. When you are pulling people off welfare and into work, they do not have the average productivity of the rest of the workforce. That is why the OECD says that, by pulling those people into employment, as a ‘statistical artefact’ you get a negative impact on labour productivity.

Does that mean we should not pull them into the workforce? Does that mean we should say, ‘Keep the long-term unemployed out of the workforce,’ because we do not want to change our labour productivity figures? No, of course not. We want to bring those people into the workforce. We want to give them an opportunity in the general economy. We know it will have that effect, but we also know that over a period of time you will get a much stronger economy as a result.

Those people who pull out these ‘statistical artefacts’ and try to make them a political point when they have no understanding of what they are talking about cannot be trusted with the Australian economy. They are not humane; they are not people who have the interests of the unemployed at heart. They are political charlatans.

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