Illustration: Michael Mucci.

Illustration: michaelmucci.com

It’s official: Australia’s rate of improvement in the productivity of labour returned to normal during the reign of Julia Gillard.

How is that possible when big business was so dissatisfied and uncomfortable during Gillard’s time as prime minister? The latter explains the former.

According to figures in a speech by Reserve Bank governor Glenn Stevens last week, labour productivity in all industries improved at an annual trend rate of 2.1 per cent over the 14 years to the end of 2004, but then slumped to an annual rate of just 0.9 per cent over the six years to 2010.

This is what had big business rending its garments over the productivity crisis. Egged on by the national dailies, chief executives queued to attribute the crisis to the Labor government’s "reregulation" of the labour market, its failure to cut the rate of company tax, plus anything else they didn’t approve of.

Except that, according to the Reserve Bank’s figuring, labour productivity improved at the annual rate of 2 per cent over the three years to the end of 2013.

So why no crisis after all? Well, as wiser heads said at the time, much of the apparent weakness in productivity was explained by temporary factors such as, in the utilities industry, all those desalination plants built and then mothballed and, more significantly, all the labour going into building all those new mines and gas facilities.

No doubt much of the recent recovery is explained by the many mines now starting to come on line - meaning we can expect the productivity figures to remain healthy for some years. Few extra workers are being employed to produce the extra output - another way of saying the productivity of the miners’ labour is much improved.

But mining hardly explains all the improvement, so what else? At the time when business complaints were at their height, many businesses - particularly manufacturers - were suffering mightily under the high dollar.

Many have been forced to make painful cuts, abandoning unprofitable lines and laying off staff. Some have gone out backwards, with the best of their workers being taken up by rival employers.

Guess what? Such a process is exactly the sort of thing that lifts the productivity of the surviving firms. In their dreams, chief executives like to imagine their productivity - which they perpetually conflate with their profitability - being improved by governments doing things to make their lives easier.

But requiring them to be lifters rather than leaners - which is pretty much what That Woman did - usually gets better results. And since the dollar remains too high and seems unlikely to come down anytime soon, it’s reasonable to expect the non-mining sector’s productivity performance to continue improving. Who told you productivity was soft and cuddly?

As for the convenient argument that the productivity slump must surely be explained by Labor’s "reregulation" of the labour market under its Fair Work changes, it’s cast into question by some figuring reported in another speech last week, from Dr David Gruen, of Treasury.

Gruen examined the rise in nominal wages over the decade to March this year, as measured by the wage price index, then compared this aggregate rise with the rise for particular industries. In contrast to the days when wage-fixing really was centrally regulated, he found a far bit of dispersion around the aggregate.

Wages in mining, for instance, rose a cumulative 9.7 percentage points more than the aggregate. Wages in construction rose by 5.4 percentage points more and wages in the professional, scientific and technical sector rose by 2.5 points more.

By contrast, wages in manufacturing rose by a cumulative 0.9 percentage points less than aggregate wages. Those in retailing rose by 4.3 points less and those in the accommodation and food sector rose by 7.6 points less.

Notice any kind of pattern there? It’s pretty clear. Wages in those industries most directly boosted by the resources boom rose significantly faster than aggregate wages, though not excessively so considering it was a 10-year period.

By contrast, wages in those industries worst affected by the boom-induced high exchange rate - manufacturing and tourism - rose more slowly than the aggregate. Retail had its own problems, with the return of the more prudent consumer, and its wages grew by less than the aggregate.

That’s just the dispersion you’d expect to see in a "reregulated" labour market? Hardly.

What it shows is that we now have a genuinely decentralised and more flexible wage-fixing system, delivering wage growth in particular industries more appropriate to their circumstances.

If that’s reregulation, let’s have more of it.

Twitter: @1RossGittins