However, inputs include those from capital, even if commentators frequently refer to labour productivity only. If businesses do not invest in innovation and new technology, work practices alone cannot produce high productivity.
At the same time, there may often be lags between investment in new technology or innovation and growth in outputs. Australia’s productivity may have been reduced by investment in mining infrastructure that has not yet come into full production.
We know productivity is largely determined in the workplace, but the traditional economic understanding of productivity works best at the national level of the whole economy. Once we drill down to organisations it is not always so clear.
In manufacturing we can easily identify the number of widgets produced as outputs. But it’s not so easy in the service sector, which accounts for three quarters of our employment. What outputs do we measure as productivity in schools, hospitals, art galleries, aged care facilities and the like?
Can hospital productivity merely be measured in terms of how quickly patients are turfed out of beds, or should quality of service be a consideration? These issues are particularly important as Australia in the Asian Century envisages service provision to Asia as a key economic activity.
Many businesses do not have effective performance measurement systems in place, especially in the service sector. An important starting point to address the issue of productivity would be to encourage small and family businesses to adopt effective performance measurement. This issue goes to the requirement for upgrading management skills mentioned in the McKell Report.
For the large services sector quality of service is a critical and achievable factor for measurement, through, for example, customer satisfaction surveys. This is not the same thing as productivity, but at an organisational level it can be an indicator. It also affects the bottom line, as poor service provision will hinder market growth. To compete in Asia in this sector, service quality will be important in a growing and discerning middle class market.
Quality of the work environment is also associated with high productivity in substantial research in Scandinavia over many years. My own research comparing New Zealand and Denmark shows that quality of work environment, including well-being, job satisfaction, employee voice and workforce development through training, impact on indicators of productivity such as employee engagement and quitting behaviour.
Employee voice may also contribute to innovation, and quality of the work environment is clearly where management skills are important.
Ray Markey is the director of the Centre for Workforce Futures at Macquarie University. He will be among the speakers at Macquarie University’s The Future of Work Symposium Series in Sydney on November 29. This article first appeared on The Conversation.
