New research from SGS Economics and Planning reveals considerable differences in productivity performance between the capital cities and regions.
Labour productivity is the amount of income generated for each hour worked. Sydney is leading the Australian major cities with labour productivity of $93 followed by Perth and Melbourne with $81, and Brisbane and Adelaide with $77 and $74 respectively. These patterns in productivity reflect the different economic structures of regional and city economies across Australia.
“Productivity in big cities is diverging from the rest of the country,” said Terry Rawnsley, National Leader of Economic & Social Analysis at SGS Economics and Planning. “This is primarily due to the high concentration of high labour productivity industries like information media, financial and insurance services and professional services within major cities.”
The growth of these industries and their increasing concentration in cities reflects the advantages of economies of scale and scope offered by the size of larger cities. Cities provide a deeper pool of customers, allowing firms the opportunity to sell more products, especially higher value niche products, and gain from buying in bulk from suppliers.
Regions find it increasingly difficult to cultivate knowledge intensive employment and are being impacted by the declining competitiveness of manufacturing, which has resulted in wide spread closures of factories and refineries. Major cities are also seeing this type of closure; however, their high labour productive industries compensate for the loss in income. Currently, the regions are heavily dependent on agriculture and mining which can be subject to unpredictable weather and commodities price cycles.
“In the major cities, improving transport to increase business-to-business connections and access to workers and developing high density employment and residential clusters (that leverage off new and existing transport links) are measures that enhance urban productivity.”
“In the regions, creating a European style settlement pattern with fast rail transport between major regional centres and capital cities will provide some of the benefits of big city agglomeration to places like Geelong, Newcastle and the Gold Coast,” said Mr Rawnsley.
Each major regional centre can provide a hub for their hinterlands, which would focus on health, education, government and cultural services. Areas not served by fast rail connections to the big cities would need to focus on existing strengths, which range from tourism and lifestyle locations, agriculture and food production, mining and specialised manufacturing.
These actions will help lessen the uneven economic growth that is dividing Australian society.
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