Increasing productivity cannot be a 'relaxed and comfortable' proposition

John Howard's justly famous political instincts were never more evident than when, in the leadup to the 1996 election, he promised voters a "relaxed and comfortable" Australia. After a decade or more of radical economic reforms, Australians were feeling anything but relaxed.

This was scarcely surprising. If there was a single consistent theme running through the microeconomic reform program, it was that no-one should ever have a secure job. Manufacturing workers saw the tariffs and quotas that protected them from import competition stripped away. Government employees saw their organisations corporatised, downsized and privatised. Where services could not be sold off altogether, they were subject to compulsory competitive tendering.

Although there were various attempts to resist these changes, they were almost universally unsuccessful. The reforms had bipartisan political support as well as strong backing from big business and, in most cases, the acquiescence of a trade movement that was, in any case, weakened by high unemployment and declining membership.

As a result, the immediate response of most people was to work harder to respond to the increased pressure on their organisations and to protect, if possible, their own jobs. The fabled Australian long weekend disappeared, to be replaced, in many cases by a workweek that extended to include Saturdays and Sundays. From tea breaks to annual leave, workers lost or were discouraged from exercising their leisure entitlements. Meanwhile, the pace of work accelerated.

The first evidence that the century-old trend to increased leisure had turned around, at least for full-time workers, began to emerge in the early 1990s. By the mid-90s, the increased stress of working life had become the kind of commonplace that forms the basis of columns in Sunday magazines. Apart from the unemployed, everyone was working more and enjoying it less.

The responses of economists to all of this were curiously ambivalent. On the one hand, discussions of microeconomic reform were full of contrasts between the "lazy", "sleepy", "complacent" nature of the economy before reform and the dynamic effects of the "icy winds" (or, occasionally, the "hot blast") of competition. On the other hand, most economists rejected claims that the intensity of work was increasing, and that this was the main source of rapid productivity growth.

Standard economic welfare theory says that in assessing productivity gains arising from increased work effort it is necessary to take account of the disutility associated with greater effort. However most economists, with the notable exception of Ross Gittins of The Sydney Morning Herald, ignored this point.

Sustained productivity improvements cannot be achieved through higher effort. At most, it may be possible to raise work effort to a higher level and sustain this level indefinitely, producing a once-off gain in productivity. More likely, in the long run, workers will find ways of clawing back leisure time, shunting particularly stressful tasks to the bottom of the pile and more generally "downshifting" their work effort and consumption aspirations.

This seems to be happening. According to the Australian Bureau of Statistics, average working hours for full-time employees increased from 42 to 45 hours a week between 1982 and the mid-1990s, levelled out, and have declined slightly over the past two years. It is reasonable to assume that work intensity has followed a broadly similar pattern.

The productivity statistics reflect the easing-off in effort. The best single measure is multifactor productivity, which takes account of capital inputs and working hours but not of changes in work intensity. After two decades of fairly poor performance, ABS estimates showed a strong increase in multifactor productivity from the end of the recession in 1992 to the late 1990s, when work hours and work intensity reached their peak.

In the last few years, however, as work intensity has eased off, so has (measured) productivity growth. The figures have bounced about but the average rate of multifactor productivity growth since 1998-99 has been below 1 per cent.

Can the Howard government claim, then, to have delivered a relaxed and comfortable Australia. Certainly it could not do so on the basis of its first term in office. The government ditched its pre-election commitments as "non-core" and used the Black Hole and the Commission of Audit to justify a new round of reforms and Budget costs. But the pace of reform has eased significantly since then.

Many commentators have criticised the slowing pace of reform, arguing that it has contributed to slower productivity growth. They may be right but a slowing pace of reform, along with worker resistance to the erosion of leisure time, has also contributed to more relaxation and comfort.