Productivity metrics, especially in service economies, fall short of reflecting true economic efficiency. The cornerstone metric, Gross Value Added (GVA), does not account accurately when labor serves dual roles as input and output. In professions like consultancy or plumbing, the income generated is misleadingly measured as productivity. If service providers raise prices without enhancing service quality or efficiency, this leads to inflated productivity figures. This inflation becomes more apparent in the financial sector, where much of the output is attributed to market structures rather than actual service delivery.
In service economies, labor is often both an input and output. A psychologist or plumber sells their time, thus their income is the output.
Measuring productivity in services often equates to how much one charges per hour, subtracted by basic expenses, raising prices falsely inflates productivity.
When the self-employed tradie raises their fee without altering expenses, productivity appears to soar, but this merely reflects market power, not actual productivity.
The Productivity Commission has revealed that a significant portion of output in finance comes from market mechanisms rather than actual services provided.
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