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Following the record growth recorded in the second half of the 1990s, labour productivity growth has slowed somewhat in recent quarters, in line with the pause in overall economic growth (see Statement 3).
Employment growth was particularly strong in the two years leading up to the Sydney Olympics, with this growth focused largely in highly labour intensive sectors of the economy, particularly construction. By nature, these are relatively low labour productivity sectors when compared with highly capital intensive areas such as mining. Combined with the recent pause in economic growth, this has led to lower productivity growth in the short term.
However, despite this cyclical slowing in productivity growth, prospects for productivity growth over the medium to longer term remain sound. As highlighted, the combination of stable macroeconomic policies, ongoing structural reform and the increased usage of new technology should all contribute to a resumption of strong productivity growth.
Government has a key role in providing a policy framework for the private sector, to foster the efficient and practical adoption of new technology. The essential framework involves a vigorous national competition policy and flexible labour markets, in a stable macroeconomic context to create a favourable investment environment.
The Government has initiated technology and educational policies that support Australia's transformation to a modern technology-based economy. The Government released Backing Australia's Ability - An Innovation Action Plan for the Future on 29 January 2001. The package invests $3 billion over five years in a wide range of measures designed to further encourage innovation. This builds on the Government's investment of around $4.5 billion in major programmes of science and innovation in 2000-01 and on broader support provided in other areas of the innovation system such as education and training. These additional investments demonstrate the Government's recognition of the importance of innovation to national prosperity - see also Budget Paper No. 2 and at http://www.innovation.gov.au.
In 1997 the Government also established the National Office for the Information Economy (NOIE). NOIE is helping Australians create a world-class online economy and society through its work developing, overseeing, and coordinating Commonwealth Government policy on electronic commerce, online services and the Internet.
But applying better education and scientific skills are ultimately labour market issues. As the OECD observes in the Report on the Growth Project:
`Improving skills is not enough - human capital needs to be used efficiently and its interactions with new technology [must] be enhanced. This means a reorganisation of work, since firms that introduce new work practices such as employee involvement, flatter management structures and teamwork tend to enjoy higher productivity gains than other firms. It is essential here to give workers greater voice in the process of change and institutions of labour-management cooperation should be strengthened. This calls for modernisation of traditional systems of collective bargaining and wage formation. In addition, regulation should provide for more flexibility in working hours, allowing new forms of work to flourish.'16
16 OECD (2001), p15.