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News News OECD suggests that labour policies driven employment concerns only can decrease productivity
The OECD has unwittingly weighed into the Australian political debate, suggesting strong employment policies can have a negative impact on productivity.

The rather dry concept of productivity - a measure of output per worker - has been the key focus of the economic argument between Prime Minister John Howard and Opposition Leader Kevin Rudd this week.

Labor claims that productivity has declined over the decade of the Howard Government, while the coalition says Mr Rudd doesn't actually understand productivity, because it is actually increasing.

Labor argues that annual productivity growth has declined from 3.3 per cent in the mid-1990s and 2.2 per cent through to the turn of the decade, while for the decade projected ahead in the Government's own Intergenerational Report it was 1.5 per cent a year.

The Government said the Labor figures are wrong and points to the last two quarters of 2.0 per cent productivity growth - 1.4 per cent in the December quarter and 0.6 per cent in the March quarter. However, because of the negative growth in the June and September quarters of last year, annual growth is just 0.9 per cent.

In its 2007 employment outlook, the OECD suggested sluggish productivity could be a function of a strong labour market. In a chapter on the impact of labour market policies on productivity, the OECD indicated that strong jobs policies could have a counter effect on productivity because of the increase in unskilled labour in the workforce.

"Labour market policies can increase productivity by encouraging training, enabling the movement of resources into emerging, high-productivity activities, improving the quality of job matches and increasing the spread of technological change," the OECD report said.

"However, pro-employment policies can depress measured productivity by, among other things, increasing the proportion of low-skilled workers employed. The bottom line is that both the employment and productivity impacts of policy reforms should be taken into account when evaluating their success."

According to the OECD, Australia's labour productivity was the fourth lowest among 17 OECD nations over the past 25 years, ahead of Switzerland, Canada and New Zealand. However, it was fourth best in terms of jobs growth.

The OECD also had a positive outlook for Australian economic growth over 2007 and 2008. While on average growth would be below 2006 levels, the OECD said activity was expected to strengthen in Australia. It forecast real GDP growth at 3.3 per cent for Australia in both 2007 and 2008, compared to the average of 2.7 per cent for all OECD nations. It also predicted a continuing acceleration in employment growth in Australia in 2007, tipping the jobless rate to come in at 4.6 per cent over the next two years.

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