Unpacking Australia’s dwindling productivity growth in Australia

• Australia’s labour productivity growth has stalled. Output per hour worked is barely higher than in 2017, with productivity growth far below the pace of the late 1990s and early 2010s.

• Australia’s productivity problem is multifaceted. Sustained weakness in business investment has prevented workers from getting the tools they need; at the same time, technological gains have slowed. Workforce changes are also at play, with the non-market sector becoming a larger part of the economy in recent years.

• Lifting Australia’s productivity growth has been put at the centre of the Albanese government’s economic agenda in its second term. An upcoming roundtable event is a first step toward new policy recommendations. Forthcoming work will look in more depth at the causes of the current productivity malaise and the recommendations we would like to see from the upcoming national productivity roundtable.

Australia’s productivity challenges have come into sharp focus. Next week, business, policy, and community leaders will gather in Canberra for a national productivity roundtable. The goal is to chart a path back to stronger productivity growth.

A broad conversation around Australia’s productivity growth is long overdue. Labour productivity has flatlined; stripping out the volatility from pandemic disruptions, labour productivity is only marginally higher than in 2017. Before then, productivity growth averaged around 2% in the early 2010s and 2.6% through the turn of the millennium – a period marked by microeconomic reforms, rapid technology uptake, and capital investment.

The political and economic imperatives of lifting productivity growth are clear; productivity growth is the most important determinant of Australians’ living standards. It does so in two key ways:

• Higher incomes and healthier profit margins: As productivity rises, it becomes cheaper to produce the same amount of goods or services. That allows firms to pay higher wages without a commensurate increase in prices or a reduction in profit margins. The aggregate effect is higher real incomes, stimulating demand as households spend their extra cash through the economy.

• Fiscal capacity: More output per worker boosts government revenues, increasing the pool of funding for services such as health, education, infrastructure, and social safety nets – all without the need for higher taxes.

Download the full report to read more about Australia’s Productivity