David Peetz and Ben Spies-Butcher were invited to give evidence before the Senate Select Committee on Productivity in July. Their testimony built on Prof Peetz’s earlier Submission on behalf of the Centre. This is their opening statement.

Thank you for inviting us here.

Our submission was structured to respond to specific questions raised in the Committee’s discussion paper. It makes some points about public policy. Our opening remarks won’t repeat them. Instead, we’ll make some more general points. We’ll start with some about measurement.

Labour productivity is quantity of output per unit of labour input. Wage costs are not part of the productivity equation.

It’s hard to measure at the best of times. It’s especially tricky to try to measure multi-factor productivity. It’s misleading to just look at short-term movements between selected quarters. It’s mostly meaningless to make assertions about productivity in the public sector. Sure, you can increase the purported productivity of nurses by making them look after more beds. But ask the patients whether they think that improves the quality of service.

Survey data from the 1990s suggest only a minority of workplace managers correctly measured productivity. It says something that the national government surveys that collected these data have never been repeated.

All this raises serious questions about whether managers understand productivity, and related matters, like: who makes the decisions that drive productivity?

Who decides about technology, about research and development, about employee training? On which particular technologies firms buy, install and use? On how much money is allocated to the training of workers to use new technology, or how they are deployed? On how much the firm relies on precarious work, or on how much voice workers are allowed to have?

And we would ask about the relationship between wages and productivity. Productivity is not increased if management reduces wages. Workers have less incentive to work harder or more thoughtfully. Management has less incentive to introduce new technology. It boosts profits, but that’s not the same thing. Sure, there are situations in which it can go the other way – if wage rises are so high that they block funds that would genuinely be used for investment. But the recent evidence suggests that, as profits have risen, investment has fallen, not risen.

Meanwhile, numerous studies, some funded by employers, raised real doubts about whether unions, on average, have a direct impact on productivity. Fundamentally, union members want a cooperative relationship with management, but not an acquiescent one. It’s the decisions management makes, and its relationship with workers, that shape conflict and cooperation at work, and this affects productivity.

The data raise very serious questions about whether giving more power to management, and taking power away from worker representatives, does anything to make management more willing and able to invest in improving productivity.

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Related submission: Submission to the Senate Select Committee on Productivity in Australia