1
Q
What is structural change?
A
The changes in the distribution of output, income and employment across industries, sectors, regions and states overtime.
2
Q
Changes to the structure of the economy
A
- Agricultural activities dominated during the country’s pre-industrial phase
- Agricultural → industrial economy
- Development of manufacturing
- The economy then began to focus on skill and technology intensive sectors
- In the long term, the services area dominates and the manufacturing industries declines
3
Q
Stats for the changes in our economy
A
- At its highest, manufacturing accounted for nearly 25% of output, yet it is just 10% today
- After WWII agriculture accounted for 35% of total output, but only accounts for 5% now
- Mining’s share of output has increased as mineral deposits were developed in WA and QLD
- Services now account for 77% of output, from 50% in 1950
4
Q
Endogenous influences
A
When changes arise as part of normal economic activity
5
Q
Individual firms/industries
A
- Individual firms innovate, seeking higher profits
- Industries are collections of firms, so any changes made by one firm are likely to be felt across an industry as competitive forces play themselves out
6
Q
Impacts of structural change
A
- Structural change impacts on business products and process. Changing patterns of demand and supply bring new challenges along with opportunities, such as finding and training skilled workers, trying to access overseas markets, and managing exchange rate risk.
- In any industry, business profitability and longevity depends upon understanding changes in markets, bring proactive and adaptable to change and not being ‘caught’ in the declining phase of the product life cycle.
- Structural change is accompanied by changes in the occupational landscape. In general, it results in increased demand for skilled workers, depending on the sector and the type of skills in demand
7
Q
Economic activity and productivity
A
- The same endogenous forces that drive structural change are also drivers of growth
- Economic growth also drives the process of structural change as higher per capita led to changing preferences
8
Q
Productivity
A
- Refers to the efficiency with which people or firms convert productive resources into outputs of goods and services
- These goods and services are produced by the combining productive factors – land, labour, capital and enterprise
9
Q
Labour productivity
A
- Total output per hours worked
10
Q
Capital density
A
- The amount of capital per unit labour employed
- Increasing capital density improves labour productivity because workers have more capital equipment at their disposal
11
Q
Multifactor productivity (MFP)
A
- Usually measured as the output that results from a ‘unit bundle’ of labour and capital
- Captures the broad technological advances that increase the amount of output produced form a given amount of labour and capital
- This might include factors such as improvements in management and production process, increased scale, skill accumulation and improvements in the effectiveness with which labour is combined with capital and put to work in firms and industries throughout the economy
- Also known as total factor productivity
12
Q
MFP reflects
A
factors not directly associated with labour or capital
13
Q
Reasons for the productivity boom
A
- Opening of the domestic economy to the discipline of international markets after protection was dismantled
- The cost reductions information
- Communications technology brought to finance, transport, wholesaling and communications sectors
14
Q
Reasons for the slowdown in productivity during the 2000s
A
- The influence on information and communications technology (ICT) on productivity wanted
- The inability of industrial relations laws and workplace regulations to support market forces in the labour market
- Government regulation and excessive ‘red tape’
- Capacity utilisation problems (skills shortages and bottle necks)
- The GFC of 2008 slowed the world economy and ushered in a number of significant behavioural changes around the willingness of households to save borrow, and of financial institutions to lend
- Industry specific factors such as falls in agricultural output due to drought
15
Q
Productivity performance seems to have improved over the last 5 years
A
- Labour productivity grew at an average of 2% (2008-09)
- 0.1% over the previous 5 years
16
Q
Importance of productivity improvements (last few years)
A
- The mining boom is over
- The size of the working age population is expected to decline
- This has focused attention on the drivers of productivity and what can be done to increase it
17
Q
Multifactor productivity over the past few years
A
- Shrunk to 0.1% p.a.
- Was 0. 7% in the previous 5 years
- Could be due to firms ‘tightening up’ after the GFC
- Expansion of output as mineral projects come on line
18
Q
Productivity varies greatly across the sectors of the economy
A
- Attributed to the amount of capital equipment at a worker’s disposal
19
Q
Drivers of productivity
A
- Investment in physical capital and infrastructure
- Innovation
- Investment in human capital through education and training
- Enterprise (management and entrepreneurship)
- Competition
20
Q
- Investment in physical capital and infrastructure
A
- E.g. machinery, equipment and buildings
- More capital equipment at worker’s disposal = more output per hour
21
Q
- Innovation
A
- Exploration of new ideas
- 3 types:
o Product: innovations in the nature of products and services
o Process: innovations in productive methods and process
o Organisational: implementation of new methods in a firm’s business practices, workplace organisation or relations with other firms in the supply chain
22
Q
- Investment in human capital through education and training
A
- Develops worker’s skills – their ability to be creative, use capital equipment and to implement innovations
23
Q
- Enterprise (management and entrepreneurship)
A
- Combines other factors of production
- Determines a firm’s ability to improve efficiency, recognise opportunities and adapt to market changes
24
Q
- Competition
A
- Creates incentives to innovate, and ensures that resources are allocated to the most efficient firms
25
Higher productivity is vital for any private business
- Profit motive and the forces of competition are the main drivers of innovations and investment that will lead to higher productivity
- Firms strive to deliver better products to buyers at lower costs
- Achieving this delivers the owners of capital higher profits
- Firms that cannot continue to improve productivity will eventually become less competitive and exit the market, freeing resources for more productive use
26
What can productive improvements also result from?
Education, training and better management
27
Technological change
- When technological change is incorporated in some tangible way it is known as embodied technological change
- Is often less tangible = disembodied technological change
28
Better management in improving a firm’s productivity
- Corporate advisers suggest it is the most important factor
- Includes
o Responding to changes in the market
o Developing the firm’s workforce
o Better use of ICT
o Attracting and retaining high quality people
o Promoting employee participation in decision making
29
Economic value
the ability of goods and services to satisfy consumer wants
30
Government initiatives aimed at improving productivity
1. Built a desalination plant in response to water shortages
2. The national broadband network
3. The national disability insurance scheme
4. National quality standards for pre-school education
31
MER
- Microeconomic reform
| - Policies that reduce institutional and regulatory impediments to a more productive and efficient economy
32
Australia’s economic culture that limited productive improvements up until the 1990s
1. A narrow economic base with high levels of dependence on primary products ad simply transformed manufactures (STMs)
2. High levels of protection of industry from overseas competition
3. Government business enterprises (GBE) were monopoly sellers of key services
4. High levels of market regulation
5. A centralised wage setting and industrial relations system that effectively acted as protection for labour
33
MER targets
- Improved efficiency
- Promoting competition
- Encouraging change
- Removing barriers to a market based allocation of resources
34
Reforms include:
- Financial deregulation
- Tariff reductions
- Privatisation of government owned assets
- Greater commercial focus on the provision of economic infrastructure
- Increased internationalisation of the economy
- Increased flexibility in labour markets
- Greater fiscal responsibility
- More extensive education and training in the workforce
35
Ways government policy can help Australia’s productive performance
1. By increasing the incentives for the owners or managers of enterprise to make productivity – enhancing changes to the products they produced or the way in which they are produced
2. By reducing barriers to implementing productivity – enhancing change
3. Facilitating the movement of factors of production from existing uses to ones in which they can be combined in more productive ways
36
Types of MERs
- The labour market and workplace relations
- Taxation reform
- Trade liberalisation
- Infrastructure policy
- Education and training policy
- Research and innovation
- Deregulation and competition
- Productivity and macroeconomic objectives
37
Labour market and workplace relations
- A decentralised labour market rewards skilled, productive employees through better pay and conditions
- Work choices legislation:
o Changing unfair dismissal laws
o Making it more difficult for workers to make strike action
o Reducing the influence of trade unions
38
Work choices legislation was controversial
- Business and government highlighting the economic potential of a free labour market
- Trade unions arguing that it damaged work conditions and social equity
39
Changes to the industrial relations system (labour government after 2008)
- Established Fair Work Australia to act as a central umpire on dispute resolution and wage setting
40
Advantages of encouraging innovative and progressive workplaces
- Focus on people through skill development and motivation, and tend to be more productive and profitable
41
Changes to the tax system designed to improve its operation
- Capital gains tax
- GST
- PAYG
- Changes to the tax brackets
42
On-going problems with the Australian taxation system
- Difficult for state governments to fund priorities
- Number of loop holes
- Super returns are tax free
- Negative gearing
43
Key recommendations of the Henry Taxation review (2008)
- Concentrating revenue raising on 4 efficient tax bases:
o Personal income
o Business income
o Private consumption
o Economic rents from natural resources and land
- Configuring taxes and transfers to support productivity, participation and growth
- Establishing equitable, transparent and simplified personal income tax featuring a much higher tax-free threshold (around $25,000)
- Efficient land and resources taxation
- A more open, understandable and responsive tax system
44
Results of Australia’s trade liberalisation since the 1970s
- Tariff cut (25%) in 1973 and phasing out tariffs
- Increased trade
- Lower protection to force industries to become more efficient
45
Long term aims of trade liberalisation
- Force industries to become more efficient
| - This will release resources which are presently wasted
46
Hard infrastructure
roads, water supply, electrical grids, ports and telecommunications
47
Soft infrastructure
education and health
48
2013 National Infrastructure Plan recommendations:
- National building fund
- National broadband network
- Increase in public private partnerships
- Establish National Infrastructure Construction Schedule (NICS)
49
User-pays principle to relieve traffic congestion
- Using tolls or taxes to increase the price of travel in peak periods can reduce regative externalities
- Reduces road use, increases travel speed and cut emissions
50
Human capital and how it can be improved
- Knowledge, skills, competencies and attributes embodied inhuman beings
- Improved through formal and informal learning, skills development and management skills
51
Examples of recent government policies in education and training
- Australian Framework (AQF)
- Australian Qualifications Training Framework (AQTF)
- Tertiary Education Quality and Standard Agency (TRQSA)
- 2014 productivity commission
52
Benefits of research and development
- New or improved products and services
- Increased sales revenue
- Reduction in the costs of production
- Gaining an advantage over competitors
- Improved customer services
- Greater stock of human capital, creativity and sustainability
53
Institutions in Australia that carry out the most R&D
- Universities
- Public sector e.g. CSIRO
- ANSTO
- Australian research
54
Innovation
- The implementation of new or significantly improved product, process, new marketing method or a new organisation method in business practices, workplace organisation or external relations.
55
NCP was significant in the MER process
- NCP focussed on removing unnecessary regulatory barriers and establishing competitive access to public infrastructure
56
Three stands of reform focussed on by the NRA (National Reform Agenda)
```
1. Human capital
o Health
o Educations
o Training
2. Competition
o Energy
o Transport
o Infrastructure
3. Regulatory reform
o Reducing the burden imposed on businesses and consumers by the 3 levels of government
```
57
Types of efficiency
- Technical
- Allocative
- Dynamic
58
Technical efficiency
- The ability to produce more output from a given unity of output
- Can be measured by the cost effectiveness of an input
59
Allocative efficiency
- When all resources are allocated to their ‘most valued uses,’ those baring the least opportunity cost, therefore maximising output
60
Dynamic efficiency
- The ability of the economy to adapt to changes overtime, to innovate, to conduct research and development and to take advantage of new opportunities as they arise
Economics ATAR
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