The Productivity Commission has released new research that emphasises the important role of policy when the time comes for improving relative living standards and increasing productivity after COVID-19.
Chair of the Commission, Michael Brennan said the COVID-19 pandemic had generated Australia’s worst recession since the Great Depression and brought to an end 28 years of continuous economic growth.
“Over the last two centuries, Australia has experienced several severe recessions,” Mr Brennan said.
“While economic growth has often rebounded quickly, the labour market has taken longer to recover.”
He said labour markets were often weak long after recessions had ended.
“In some cases, unemployment has remained high for over a decade and ‘hidden unemployment’ can mask the real extent of unemployment.”
He said recessions could also induce fundamental changes to policy settings.
“The aftermath of the 1890s recession saw the establishment of the ‘Fortress Australia’ approach, with trade protection, wage arbitration and Government monopolies in key industries,” Mr Brennan said.
“The 1930s saw the worldwide rise of trade barriers. By contrast, the early 1980s and early 1990s saw a fundamental rethink of Australian policy, focused on openness to trade, competition and greater flexibility.”
He said the research showed Australia had always been a rich country, but productivity growth rates varied over time.
“Almost all of Australia’s long-term increases in income are due to productivity growth, but the path has not always been smooth,” Mr Brennan said.
“Looking to our history provides some lessons for the future, including the importance of openness to trade and investment, competition and flexible regulation of product and labour markets.”
He said the forces that drove innovation and productivity growth in services might look different to those which achieved such stellar gains in agriculture, mining and manufacturing.
“This will require new policy approaches, and a new research agenda to support it,” Mr Brennan said.
The Commission’s 40-page Productivity Insights paper can be accessed at this PS News link.