THE economy is struggling to grow because Australians get too much pay, too much annual leave and are too hard to fire, an American economist says.

Bob Baur, chief global economist at Principal Global Investors, said the local labour market was in need of reform if the economy was going to shift from its dependence on mining for growth.

Mining investment is dwindling and iron ore isn’t fetching the prices that it used to, but other sectors have yet to step up to fill the breach.

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Dr Baur said Australia needs to start making things again, and exporting its services, like education.

But, with the Australian dollar still too high and the labour market too restrictive, it’s hard to do business here, he said.

“The best thing for Australia would be some significant economic reform in terms of maybe loosening up the labour market and making it easier for businesses to take on workers or let workers go in difficult times,” Dr Baur said.

“You’ve got tonnes of wonderful natural resources here but don’t export the resources — export them as a car, or a computer or a television set, or furniture.

“You need to put some labour into it and make something of it here, rather than let somebody make something of it across the world.”

Dr Baur said Australia needed to follow the footsteps of the US, where manufacturing was thriving again after having lost six million jobs through the 90s and noughties to the cheaper labour markets of China and India.

While rising wages in developing countries and increased transportation costs had made the US much more competitive, manufacturing continues to deteriorate in Australia.

“Wages are too high,” Dr Baur said.

“Either it’s the actual level of wages or it’s the fact that it’s very difficult for businesses to let somebody go for whatever reason — some combination of that.

“In the US, we get two weeks’ vacation, so three or four weeks at one time (as in Australia) is not something that’s natural, at least in the US — it is in Europe, but then, Europe is not growing terribly fast either.”