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Australia’s productivity gap widens compares to the U.S.

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Australia’s ongoing efforts to enhance productivity growth have yielded significant reforms, yet its GDP per capita lags behind that of the United States.

A recent analysis delves into the fundamental disparities between the two nations’ productivity levels, shedding light on potential explanations for this gap.

The examination, conducted by the Australian Government Treasury, underscores the critical role of productivity in shaping GDP per capita differentials.

Despite comparable hours worked per capita between Australia and the US over the past four decades, Australia’s GDP per hour worked has consistently remained at 75-85% of its US counterpart.

Income gap

This disparity underscores the significance of productivity in explaining the Australia-US income gap.

For instance, if Australian labor productivity matched US levels in 2002, Australia’s GDP per capita could have been $7,900 higher.

Consequently, closing the productivity gap holds promise for future GDP per capita gains and could propel Australia closer to the global productivity frontier represented by the US.

The analysis examines three primary explanations for the productivity gap: variances in human capital, differences in product and labor market policies, and disparities in geographic and historical contexts.

While human capital disparities, particularly in educational attainment, contribute to the gap, differences in physical capital per hour worked appear less significant.

FILE PHOTO: Tourists walk around the forecourt of Australia’s Parliament House in Canberra, Australia. REUTERS/David Gray/File Photo

Read more: Australia cracks 30% for women on boards

Geography and history

While policy reforms could narrow the productivity gap by up to one-sixth, factors such as geography and history may impede Australia’s ability to fully close the gap.

These findings emphasize the multifaceted nature of the Australia-US productivity gap and the importance of targeted policy measures to bridge it.

However, the analysis acknowledges substantial challenges in measuring productivity, citing statistical and methodological issues inherent in international comparisons.

Issues such as varying industry measurement methodologies and exchange rate fluctuations complicate accurate assessments of productivity differentials.

The exploration of Australia-US productivity disparities underscores the complexities of economic analysis and the importance of nuanced approaches to policy formulation.

Ahron Young is an award winning journalist who has covered major news events around the world. Ahron is the Managing Editor and Founder of TICKER NEWS.

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Money

Federal Reserve lowers rates amid eased job market

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The Federal Reserve has cut interest rates by a quarter-point, bringing the benchmark rate to a range of 4.5% to 4.75%, as economic growth continues but job gains slow.

The Fed noted that labour market conditions have “generally eased,” even with low unemployment, signalling a more cautious approach amid a stable economic expansion.

The statement marks a shift in Fed language, now saying inflation has “made progress” toward the 2% goal instead of the prior “further progress.”

With inflation holding steady around 2.6%, policymakers aim to keep economic risks balanced, despite pressures from slower job growth.

This rate cut reflects a strategic move to sustain economic momentum while cautiously watching inflation’s gradual trend toward the Fed’s target.

The decision was unanimous, aligning Fed priorities with a balanced approach to support both employment and price stability.

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Money

Trump victory sparks market surge as Wall Street soars

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Donald Trump’s election victory has sparked a massive rally in the stock market.

Banks and industrial companies led the surge as investors bet that Trump’s plans for deregulation and tax cuts will boost economic growth.

Shares of big banks, like JPMorgan and Goldman Sachs, soared as investors predicted fewer regulatory restrictions.

Meanwhile, industrial giants such as Caterpillar and steelmakers like Nucor also hit record highs, reflecting optimism about U.S. manufacturing.

In contrast, clean-energy stocks took a hit, as Trump’s policies are expected to favour traditional energy sectors.

This surge comes amid rising Treasury yields and falling gold prices as investors gain confidence in the transition to a Trump administration.

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Australian Treasurer and RBA chief clash over economy

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A rare dispute has emerged between Australia’s Treasurer Jim Chalmers and Reserve Bank Governor Michele Bullock over the nation’s economic trajectory.

Governor Bullock argues the economy remains overheated, even as growth data shows recent slowdowns.

Treasurer Chalmers, however, warns that sustained high interest rates are “smashing the economy.”

This debate is critical for Australians, as it will influence the future of interest rates and inflation.

Data shows a mixed economic picture: while inflation is down, it’s still above target, and the jobs market remains historically strong.

Ultimately, deciding who’s right may come down to theory and perspective on economic health.

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