Understanding Australia’s lagging productivity: What it signals for the nation’s growth

The modern Australian workforce is facing a challenge that could have far-reaching implications for job security and the overall economic health of the nation. A recent graph, presented by AMP chief economist Shane Oliver, has brought to light a concerning trend in Australian labour productivity.

The graph in question paints a stark picture: Australia is lagging behind other advanced economies, with a negative change in productivity. This is in sharp contrast to the nearly 5 per cent growth rate in the United States and 2 per cent growth in Norway. The implications of this are significant, as labour productivity is directly linked to the amount of goods a worker can produce in a given time frame. When productivity is high, it generally leads to higher wages and a lower cost of living, as more goods are produced and become cheaper for consumers. 

However, the current state of Australian productivity suggests that workers are producing less, which can lead to stagnating or even declining wages, and a higher cost of living. This is a worrying sign for Australians who may find their living standards slipping as a result.

Oliver attributes this slump in productivity to a surge in government spending, which he claims is ‘exacerbating’ the issue. He points out that productivity has fallen by another 0.8 per cent over the last year, and he argues that the high level of public spending, now at a record 28 per cent of GDP, is squeezing out private business investment. This, in turn, is likely worsening the weakness in private market sector productivity.

The consequences of this are not just theoretical. Weak productivity growth makes it harder to control inflation, which can depress long-term growth in per capita GDP and, consequently, living standards. Oliver also suggests that the Reserve Bank of Australia’s (RBA) efforts to control inflation have been made more difficult by this surge in public spending. The need to keep demand in check has resulted in higher interest rates for longer periods, which has forced households to cut back on discretionary spending.

To reverse Australia’s productivity decline, Oliver recommends ‘politically unpopular’ policies such as tax reform, labour market deregulation, and competition reforms. He urges federal and state governments to slow their spending to avoid crowding out private investment and to work in tandem with the RBA.

What impact do you think this might have on your work, income, and overall quality of life? What steps do you believe could help address this challenge? Share your insights and experiences in the comments below, and let’s explore practical solutions together to help improve Australia’s productivity and safeguard our living standards.