Labour-saving effects of ICT lessening in Australia

The benefits of ICT to Australian productivity in terms of producing a labour-saving effect have declined over the past 10 years, but technology is stimulating productivity across other areas, according to the Bureau of Communications Research’s new digital productivity report.

The report finds that IT contributed around a 0.5 percentage point gain in annual labour productivity growth in the decade beginning in 2003–04, compared to 0.8 percentage points in the previous decade.

A sharp slowdown in the growth of computer hardware from 2007–08 was a large factor in the decline, the report states. The rate of growth of investment in IT eased significantly in the 2000s, with growth in software investments slowing from 30% annually to 16% annually and hardware investments slowing from 13% to 8% per year.

Reasons for the slowdown need to be further investigated, the report states. It could have been a temporary decline in sales due to the global financial crisis or it could be because more tasks traditionally conducted on computers are increasingly being relegated to smartphones and tablets.

But whatever the cause, the report adds that there has been a strong pick-up in IT growth in recent times, which may reverse the labour productivity trend.

There is a wide variation in the size of the impact of ICT on labour productivity across different industries. The strongest effect was felt in the finance industry, followed by the information, media and telecom industry.

IT played a major role in enabling Australia’s productivity boom in the 1990s, and Australia was in fact one of the first countries to realise productivity gains from the innovative use of ICT, the report states. On the surface, the benefits ICT affords to Australian productivity thus appear to be lessening.

But the report notes that ICT may also be at least partly behind improvements in the productivity of non-human capital assets.

In particular, IT appears to have enabled a reduction in the use of land and buildings. The report also finds possible gains across a range of individual assets and industries, with the finance industry again emerging as the main beneficiary. For example, the wide availability of online banking is enabling banks to close some regional branches.

ICTs can also provide opportunities for productivity gains by allowing companies to develop innovative new products and processes that emphasise convenience, efficiency and the effective use of information through analytics.

The sort of innovations enabled by ICT are not just incremental but often require and enable the development of new business models and other fundamental changes in a company’s operation.

“Overall, the use of information technology is still generating productivity effects in Australia — in different ways, in different industries. IT also complements skilled labour and saves certain forms of capital,” the report states.

“The transformation of businesses based on digital technologies is a complex story with many variations. Analysis of how digital technologies affect productivity needs to take account of variations in production and investment strategies at the level of firms. Government policies need to ensure the business environment is geared in general ways to stimulate and enable innovation based on digital technologies.”

Image courtesy of Travis Isaacs under CC