The sector that has contributed most in recent years to the rise in Australia’s economic prosperity is also the main cause of the nation’s productivity slowdown.
A report by human resources provider, Chandler Macleod, indicated productivity growth delivered at least half of Australia’s wealth before the resources boom.
But since 2005, 90 per cent of the rise in wealth is due to increased resource prices and capital investment in the sector, not productivity gains.
Productivity is measured mainly in terms of capital and labour productivity. Capital productivity is the measure of output delivered by the available capital stock. Labour productivity measures output produced per hour of labour worked.
Chandler Macleod’s report confirmed productivity growth in Australia has not only stagnated, but decreased in the past decade.
Capital productivity has proved to be the biggest drag in Australia’s productivity, with the resources sector contributing 99 per cent to this decline.
Businesses interviewed by Chandler Macleod said there were diminishing returns from capital investments in the sector because the easiest gains, or '‘low hanging fruits'’ had already been reaped, making it harder to achieve further productivity gains.
There is also a time lag between investment and return - previous investments from the mining boom have not yet delivered.
This finding reinforced the results in a recent global report commissioned by the US Society of Human Resources Management and the Australian Human Resources Institute which ranked Australia 50 of out 51 possible places in total productivity, just ahead of Botswana.
Not only is the resources sector’s capital productivity in decline, its labour productivity is a “disaster” according to the recent “Mining in Australia 2012-2027” report from economic forecasters BIS Shrapnel.
The mining sector’s labour productivity is now 60 per cent lower than its peak in 2000-01, as a result of contractors driving harder bargains and shelved projects.
The report also showed that while companies are focusing on people management and training to improve labour productivity, providing them with innovative work tools such as better technology to help them work faster is a better solution.
Getting the right people and awarding them incentives to increase output is another recommendation.
The Productivity Commission says productivity growth is a crucial source of growth in living standards and small increases in productivity growth compound over time like interest in a bank account.