Labour productivity trends in Australian manufacturing: some time series properties

Abstract

Labour productivity plays a significant role in economic growth, labour demand and employment situation of a particular economy. In this light, the presence of a structural break in productivity, and its unit root property, has important consequences for the overall economy and in major sectors such as manufacturing. In this article, using some recently developed unit root tests, we examine: (i) the null hypothesis of a unit root in the log-level of labour productivity for 38 manufacturing subdivisions against the alternative of trend stationarity over a three-decade period; and (ii) the presence of a structural break in the series, and whether the break has had a permanent or a transitory effect on manufacturing labour productivity. Our main finding is that shocks to labour productivity have had a transitory effect, implying that policies are likely to have only short-term effects.

Acknowledgements

Helpful comments were received from the Productivity and Efficiency Conference in Taiwan, June, 2005. Research funding from the Australian Research Council (#DP0343599) is gratefully appreciated.

Notes

¹ Australian Bureau of Statistics (ABS) (1968–1999), Australian National Accounts, ABS catalogue 5206.0 and Labour Force Australia, ABS Catalogue 6203.0.

² See Ben-David and Papell (1995), Nelson and Murray (2000), Narayan (2004) and Smyth and Inder (2004). The empirical literature in this area is vast and applied for macroeconomic series viz. real GDP, inflation, real exchange rate, export and import both from the developed and developing world.

³ See Narayan (2004), Narayan and Smyth (2005a, b) and the references listed therein.

⁴ In Perron (1989), three types of models are considered. Model (A) allows an exogenous change in the level of the series, Model (B) allows exogenous changes in the rate of growth of the series and Model (C) permits both changes. Model (C) accounts for one structural break in the intercept and slope.