Resource Movements and Labour Productivity, An Australian Illustration: 1994-95 to 1997-98

Abstract

This paper presents the results of an exploratory analysis of industry change designed to shed light on the adjustment processes of Australian firms, and the impact of these adjustments on firm and industry labour productivity. The analysis is based on data for 1994-95 to 1997-98 for a non-representative sample of about 4400 Australian firms. Firm entry, exit, merger, acquisition and incorporation activity affect data on firm and industry productivity. The resource movements that accompany some of these events contribute to changes in labour productivity. The analysis shows that, for the firms in the sample: - labour productivity varied considerably between firms within the same industry; - average labour productivity in an industry increased through a combination of improvements by incumbent firms and the exit of firms; - incumbent firms were the most important source of productivity gain over the three years covered by the sample. Labour productivity increased in half of incumbent firms; - firms that exited had, on average, relatively low labour productivity; and - new firms exhibited relatively low labour productivity on average, suggesting that they take some time to become established and show strong labour productivity improvement. The data used in this study are not sufficiently comprehensive to draw firm conclusions on the impacts of resource movements on productivity improvements, particularly at the economy-wide level. Nevertheless, the analysis demonstrates the importance of industry dynamics in gaining better understanding of the nature of industry adjustment.