Overall Productivity of the Australian Economy

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Running Head: OVERALL PRODUCTIVITY OF THE ECONOMY

Overall Productivity of the Australian Economy

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Introduction
The best definition of productivity under the Australian and other contexts is, “the efficiency with which an economy employs resources to produce economic output” (D’arcy and Gustafsson, 2012, p. 23). It will remain that the most complete measure of productivity is the TFP (Total Factor Productivity), which accounts for all inputs involved in production. Normally, “the inputs are classified into capital (K), labour (L), energy (E), materials (M) and services (S)” (O'Mahony and Timmer, 2009, p. 538); the lead letters of each input are why this is called the KLEMS approach. Principally, the measures of inputs and outputs can be incorporated adjustments for quality change. Nonetheless, KLEMS approach is arduous in terms of data and that is the reason why very few countries in the world utilize this approach (Hannula, 2012). The MFP (multifactor productivity) approaches are easily implementable. The MFP approach accounts for merely two inputs, namely labour and capital. Presently, the most comprehensive measure of productivity available in Australia is MFP. Principally, labour input in the MFP ought to be adjusted for enhancements in the human capital (the quality of labour), yet as earlier hinted, this is not done in Australia at present, similar improvements to get into the MFP measure (Topp, Soames, Parham, and Bloch, 2008). Arguably, the prevailing MFP measure in Australia is more linked to market sector and it does not incorporate the efficiency of use of other inputs from other sectors, for instance, services, materials, subsoil assets, and energy
Productivity in Australia
Growth in living standards and growth in income per…...

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