Economists, the Reserve Bank and the Treasurer keep warning about Australia’s productivity problem. Here’s what productivity actually is, why it matters for your pay, and why it has slowed.
Productivity is a measure of how efficiently an economy turns inputs, such as work, machinery and materials, into goods and services.
The most common measure is labour productivity: how much is produced for every hour worked. If workers produce more in the same amount of time, productivity rises.
Why it matters
Productivity might sound abstract, but economists consider it the most important driver of living standards over time.
When workers produce more each hour, businesses can afford to pay them more without raising prices. That’s how wages can grow faster than inflation in a sustainable way. Without productivity growth, pay rises tend to push up prices, which is one reason the Reserve Bank pays close attention to productivity when thinking about inflation.
Higher productivity also means more output and tax revenue, which helps governments fund services.
Australia’s slowdown
Australia’s productivity growth has been weak for more than a decade. Treasury has said the decade to 2020 had the slowest productivity growth in 60 years, and growth has remained sluggish since.
Productivity also swung wildly during the COVID-19 pandemic. It appeared to jump in 2020, partly because lower-paid jobs were lost first, then fell back.
Australia isn’t alone. Many developed countries have experienced a similar slowdown.
Why it has slowed
Economists point to several possible causes. Business investment in new equipment and technology has been weak. The economy has shifted towards services, such as health care and aged care, where productivity is harder to lift. Competition in some industries is limited, reducing the pressure on businesses to improve.
Other factors include regulation and planning rules that slow down building and investment, skills shortages, and a slowdown in the spread of new technology from the most efficient firms to the rest.
What could lift it
Suggested solutions include reforming the tax system to encourage investment, cutting unnecessary regulation, improving education and training, increasing competition, and speeding up approvals for housing and infrastructure.
Artificial intelligence is widely seen as a potential boost, if businesses adopt it in ways that help workers produce more.
The Productivity Commission, an independent government body, regularly recommends reforms. In 2025, the Federal Government held an Economic Reform Roundtable bringing together business, unions and economists to discuss ways to lift productivity.
The challenge is that many reforms are politically difficult, and their benefits take years to appear.
