Marion runs a twelve-person precision-engineering workshop in Adelaide's northern suburbs, machining brackets, housings and fittings for the defence and mining-equipment supply chains. Her workshop is not standing still: she has invested in new tooling since the pandemic, retrained two apprentices into skilled machinists, and chased every contract she can win. But when her accountant sits her down each year, the same number refuses to move. The workshop turns out roughly the same value of finished parts per hour worked as it did in 2016 — a fact that has nothing to do with how hard anyone in the shed is working, and everything to do with a slower, quieter problem that shows up in the price of every quote she writes. Wages for her machinists have risen every year, as they should. The price she can charge customers has not kept pace, because her competitors face the same constraint and cannot pass costs on either. The gap between the two shows up in her margin, which is thinner than it was five years ago, on the same order book.
Economists have a name for the thing Marion is missing: labour productivity, the value of output produced for every hour worked. It sounds abstract, but it is the single most important number in economics for one plain reason — over any meaningful stretch of time, it is the only durable source of higher wages that does not simply feed back into higher prices. A country can redistribute a fixed pie more fairly, and it can add more workers to bake a bigger pie, but only productivity growth makes each hour of work worth more. Since the pandemic, Australia's productivity has not grown. On the measure the Australian Bureau of Statistics tracks most closely, it fell back toward levels last recorded years earlier, erasing a large share of the gains the economy had banked over the previous decade (approx.) (ABS, Australian National Accounts). This is the story of how that happened, what the government has done in response, and why the gap it has opened matters far beyond any one workshop in Adelaide's north.
What the government did about productivity
The Albanese government did not invent Australia's productivity problem, and to its credit it has not pretended the problem does not exist. Within a year of taking office, it received the Productivity Commission's 5-Yearly Productivity Inquiry, a review process legislated years earlier and handed to Treasurer Jim Chalmers in March 2023 under the title Advancing Prosperity. The report ran to five volumes and dozens of recommendations spanning tax settings, human capital, competition, data and digital technology, energy and the care economy (Productivity Commission, 5-Yearly Productivity Inquiry: Advancing Prosperity, Mar-2023). The government's own framing of the challenge followed a few months later in the September 2023 Employment White Paper, titled Working Future, which named lifting productivity growth — alongside sustained full employment — as one of the two central, long-run tasks facing the Australian economy (Australian Government, Working Future: The Australian Government's White Paper on Jobs and Opportunities, Sep-2023).
Beyond naming the problem, the concrete policy response has been narrower. In December 2023, National Cabinet agreed to revive a version of the National Competition Policy program that ran through the 1990s and early 2000s, under which the Commonwealth offers states incentive payments — worth several hundred million dollars over the following years (approx.) — to remove restrictive planning rules, licensing barriers and anti-competitive regulation in housing approvals, occupational licensing and other state-controlled areas (National Cabinet, National Competition Policy agreement, Dec-2023). The government's Future Made in Australia agenda, legislated through 2024, directs subsidies and tax incentives toward renewable-energy manufacturing, critical minerals processing and other priority industries, and is described by the government partly in productivity terms — as building the capital-intensive, high-value industries of the next economy — though independent economists, including at the Productivity Commission itself, have questioned whether industry subsidies of this kind reliably lift economy-wide productivity rather than simply relocating investment toward politically favoured sectors (Productivity Commission, public commentary on industry policy, 2023–2024). The government also expanded Fee-Free TAFE places from 2023, aimed at building the technical skills base that feeds into human capital, one of the recognised long-run drivers of productivity growth. On industrial relations, the Secure Jobs, Better Pay Act (2022) and the Closing Loopholes Acts (2023–2024) reshaped bargaining, casual employment and contractor arrangements — reforms examined in detail elsewhere on this site, and relevant here because they sit at the centre of an unresolved argument about whether re-regulating work helps or hinders productivity, discussed further below. What has not yet followed is a single, consolidated national productivity strategy or legislative package responding formally to the bulk of the Productivity Commission's 5-year inquiry recommendations; most remained without a formal government response more than a year after the report landed (approx.) (Productivity Commission, correspondence and public status updates on the 5-year inquiry).
The strongest case for the policy
Put the government's defence at its best
Productivity is a slow-moving, largely structural variable shaped by decades of investment and technology, not by any single government's term — and on that basis, judging three years of one government against a multi-decade slide is close to unfair by construction. Australia's productivity growth had already been slowing for the better part of two decades before this government took office, through periods of Coalition and Labor government alike, as the mining-investment boom of the 2000s faded, the easy productivity gains from the 1980s and 1990s reforms were exhausted, and business investment in machinery, technology and software slowed across the developed world. Australia is not alone: economists in the United States, the United Kingdom and across the Eurozone have spent more than a decade puzzling over a broadly similar slowdown, often called the "productivity puzzle," that long predates COVID and has defied policy intervention in country after country. On top of that structural backdrop, the pandemic itself scrambled the productivity data for reasons that have nothing to do with any government's competence: lockdowns temporarily shut the lowest-productivity, most labour-intensive parts of the economy — hospitality, retail, the arts — while higher-output sectors kept operating, which mechanically inflated measured productivity for a period and set up an equally mechanical "give-back" once normal trading resumed and low-productivity jobs came back online. A government cannot sensibly be blamed for a statistical echo of its own success in avoiding a deeper, more prolonged pandemic downturn. And where the government does control genuine levers, it has used some of them: commissioning and receiving a comprehensive Productivity Commission review, publicly naming productivity as a central long-run priority in the Employment White Paper, and reviving competition-policy reform with the states through National Cabinet — the same broad tool that helped lift Australian productivity through the 1990s. Structural problems built over twenty years are not solved in one term, and a government that has correctly diagnosed the problem and begun the slower work of competition and human-capital reform deserves to be judged on a longer horizon than the one this article covers.
The evidence: the productivity that vanished
Before the numbers, the concept deserves a plain-English anchor, because the whole argument rests on it. Labour productivity is simply the value of goods and services produced divided by the number of hours worked to produce them. If a country's workers produce more value in the same number of hours — because they have better machines, better training, better organisation or better technology — productivity rises, and there is more real income to share between wages, profits and prices without anyone needing to work longer. If output per hour stops rising, then any pay rise that is not matched by a price rise has to come out of someone's margin, and any pay rise that is passed on in prices adds to inflation. Productivity is, in that sense, the ceiling on how fast real wages can rise for good reasons rather than temporary ones.
A statistical mirage, then a hard landing
The first thing the data shows is that the post-pandemic productivity story runs in two acts, and it is important to separate them honestly. Through 2020 and into 2021, Australia's measured labour productivity — GDP per hour worked, published quarterly by the ABS in the National Accounts — rose sharply, climbing to a level several percentage points above its pre-pandemic trend (approx.) (ABS, Australian National Accounts, National Income, Expenditure and Product, 2020–21). This was not, in the main, workers becoming more skilled or businesses becoming more efficient overnight. It was a compositional effect: lockdowns closed or sharply curtailed the lowest-output-per-hour parts of the economy — cafes, retail stores, live entertainment, much of tourism — while office-based and higher-value industries kept producing, often from home, with hours worked falling faster than output in the sectors that stayed open. Divide a similar output figure by fewer total hours worked economy-wide, and the average productivity number rises mechanically, even though nothing about the underlying technology or capital stock has changed.
The second act began as the economy reopened through 2022. Hours worked rebounded hard and fast as hospitality, retail, tourism and events came back to life and as net overseas migration resumed at record pace, adding workers to the labour force faster than businesses could add capital, training or organisational change to make each of those extra hours as productive as the ones already on the books. Output did not fall — the economy kept growing in aggregate — but it grew more slowly than hours worked did, and average productivity fell, sharply and for an extended run of quarters through 2022 and 2023 (ABS, Australian National Accounts, various quarters 2022–2024). By the time the give-back had largely played out, non-farm labour productivity had fallen back to somewhere close to where it stood around 2016 (approx.) — erasing the better part of a decade's worth of measured gains in roughly two years (ABS, Australian National Accounts, Dec-2023 and Dec-2024 quarters). Some of that fall is the statistical mirror image of the 2020–21 rise and should unwind as the reopening effect fully washes out of the data. But by 2023 and 2024, RBA and Treasury officials were both noting publicly that even allowing for the compositional distortion, underlying productivity growth looked to have stalled to close to zero — not merely reverted to its pre-pandemic trend, but essentially flat (approx.) (RBA, Statement on Monetary Policy, 2023–2024).
The lost decade before the mirage
The COVID-era swing matters, but it sits on top of a longer and more troubling story that began well before this government, or the one before it. The Productivity Commission's 2023 5-year inquiry found that labour productivity growth over the decade to the early 2020s averaged only around 1.1 per cent a year (approx.) — the slowest of any decade in the roughly sixty years for which the Commission holds comparable records, well below the 2 per cent or so a year Australia managed through the 1990s reform period and the resources-investment years of the 2000s (approx.) (Productivity Commission, 5-Yearly Productivity Inquiry: Advancing Prosperity, Mar-2023). That slowdown reflects several forces working together over many years: business investment in machinery, equipment and technology, relative to the size of the economy, trending down from its 2000s highs; the mining-investment boom that had temporarily lifted capital-intensity fading after 2013; and Australia lagging many peer economies in the diffusion of digital technology and automation across small and medium businesses of exactly the kind Marion runs. None of this is a single government's creation. It is the multi-decade backdrop the pandemic swing was laid on top of — and the reason a purely COVID-based explanation, on its own, is not the whole story.
Multifactor productivity: the broader measure
Labour productivity is not the only lens, and it is worth checking the picture against a second one, because it rules out an obvious objection: that this is simply a story about the number of hours people work, not about how efficiently the economy uses everything it has. Multifactor productivity (MFP) measures output against a combined bundle of both labour and capital — machinery, buildings, technology — and so strips out simple stories about hours worked or capital deepening on their own. The ABS's Estimates of Industry Multifactor Productivity show market-sector MFP following a similar arc to labour productivity: a COVID-era bump, followed by a decline through 2022 and 2023 that left the level of market-sector MFP roughly flat to lower than where it stood several years earlier (approx.) (ABS, Estimates of Industry Multifactor Productivity, Australia, most recent annual release). That the broader measure tells essentially the same story as the narrower one is important. It means the fall is not simply an artefact of migration-driven hours growth; the economy is not getting meaningfully more efficient at combining the labour and capital it already has, either.
Which industries, and how Australia compares
The national number hides real variation underneath it, and the variation is informative. Mining productivity, which had propped up the economy-wide figure through the 2000s investment boom, continued to soften through the 2020s as ore grades declined and existing capital aged (approx.), while construction — an industry that expanded its workforce rapidly to meet the government's own housing targets — recorded some of the weakest productivity growth of any major sector, weighed down by fragmented small-business structures, planning delays and a skills base stretched thin across a record project pipeline (approx.) (ABS, Estimates of Industry Multifactor Productivity, Australia). Utilities productivity was volatile through the energy transition, as capital-intensive investment in new transmission and generation had not yet been matched by the higher output that investment is ultimately meant to deliver (approx.). Against that backdrop, Australia's experience is not unique but it is not simply average either. The OECD's cross-country productivity data show most advanced economies recording weak growth over the same period, but several — including the United States — posted a stronger, faster-resuming rebound in labour productivity after their own pandemic distortions than Australia managed, a comparison the Productivity Commission itself has drawn to argue that at least part of Australia's shortfall reflects domestic, not merely global, conditions (OECD, Compendium of Productivity Indicators, secondary comparative source). That distinction matters for where responsibility sits: a purely global story would let every government off the hook equally; a story where Australia lags peers facing the same global shock does not.
The RBA's assumption — and the gap it has to close
Productivity growth is not just a scoreboard number; it is a load-bearing assumption inside the machinery of economic forecasting. The Reserve Bank has to assume some rate of underlying productivity growth to work out how fast wages can rise without adding to inflation, and to project the economy's supply capacity in its Statement on Monetary Policy. Through 2023 and 2024, the RBA repeatedly flagged the weak productivity outcomes as a live risk to its inflation forecasts, noting that if wage growth continued at the pace then prevailing while productivity stayed flat, unit labour costs — the cost of labour per unit of output, and a key driver of inflation the Bank watches closely — would keep rising faster than was consistent with inflation returning sustainably to its 2–3 per cent target band (RBA, Statement on Monetary Policy, 2023–2024).
The Australian Treasury faces the same arithmetic over a much longer horizon. The 2023 Intergenerational Report, which projects the budget and economy out to 2063, assumes labour productivity growth averages 1.2 per cent a year over the projection period — a figure Treasury itself lowered from the 1.5 per cent assumed in the previous Intergenerational Report, in recognition of the weaker decade just past (Treasury, Intergenerational Report 2023: Australia's Future to 2063, Aug-2023). Even at the lowered assumption, 1.2 per cent a year is well above the roughly zero per cent Australia has actually recorded across 2022 to 2024 (approx.), and above the 1.1 per cent decade-average the Productivity Commission found even before the post-pandemic stall. Budget Paper No. 1's near-term economic forecasts rely on a similar return-to-trend assumption to generate projected real GDP growth, wage growth and, ultimately, tax receipts across the four-year forward estimates (Australian Government, Budget Paper No. 1, various years). None of these are unreasonable modelling choices in isolation — some rebound from an unusually weak run of years is a defensible central case. But every one of them is, at the point they were made, a forecast that the recent past would not repeat, resting on a rebound that had not yet shown up in the data by the time of writing.
Wages can outrun productivity for a year or two on the strength of a tight labour market. They cannot do it for a decade without either feeding inflation or eating someone's margin — and the national accounts do not care which government is in office when the bill comes due.
The critique: an agenda that names the problem but has not moved the number
The government deserves credit, examined below, for correctly diagnosing the problem. The harder question is whether what it has actually legislated is proportionate to the scale of a slide the government's own commissioned review called the worst in sixty years. Measured against that scale, the answer so far is no. The National Competition Policy incentive payments agreed at National Cabinet in December 2023 are worth several hundred million dollars across the states over several years (approx.) — a genuine and historically well-founded lever, since the original National Competition Policy program of the 1990s is credited by Treasury and the Productivity Commission with adding a meaningful share to GDP over the following decade, but a small one relative to an economy generating more than two trillion dollars a year in output, and a program whose gains, even if repeated, would take years to show up in the productivity data (National Cabinet, National Competition Policy agreement, Dec-2023; Productivity Commission, historical assessment of 1990s National Competition Policy).
More strikingly, the bulk of the Productivity Commission's own 5-year inquiry — the review the government commissioned, received and publicly welcomed — had not been met with a consolidated formal government response more than a year after it landed (approx.), and only a minority of its dozens of recommendations, spanning tax reform, human capital, competition, energy and data policy, had been substantively adopted into legislation by the time of writing (approx.) (Productivity Commission, public status tracking of the 5-year inquiry recommendations). A government can fairly be judged not only on whether it named the right problem, but on how much of its own prescribed treatment it has actually taken. On this measure, the gap between diagnosis and treatment is wide.
The Future Made in Australia agenda raises a sharper version of the same question. The policy channels billions of dollars in subsidies and tax incentives toward renewable-energy manufacturing, critical minerals processing and other government-selected priority industries, and ministers have at times framed it as part of the productivity agenda — building the high-value industries of the future. But industrial subsidies of this kind are not the textbook route to economy-wide productivity growth; they can just as easily direct capital toward industries that would not otherwise attract it on commercial merits, at the expense of sectors that might have used that capital more productively if left to market allocation. The Productivity Commission itself has publicly cautioned that large-scale industry assistance risks doing exactly this if not tightly targeted and time-limited, a caution directed as much at this policy as at any predecessor (Productivity Commission, public commentary on industry policy and subsidies, 2023–2024). Whether Future Made in Australia lifts or drags on aggregate productivity will not be knowable from the data for years; the fair criticism today is that the government has not made a rigorous, published productivity case for the specific design choices involved, of the kind its own inquiry called for across the rest of the economy.
Industrial relations sits at the centre of a genuinely contested part of this story, and this article should not pretend the evidence is settled. The Secure Jobs, Better Pay Act (2022) and the Closing Loopholes Acts (2023–2024) expanded multi-employer bargaining, tightened the legal test for casual employment, and imposed new obligations on labour-hire and gig-economy engagements. Business groups and some economists argue that re-regulating the boundaries of casual and contract work raises compliance costs and reduces the flexibility firms have to match labour to demand, both of which can weigh on measured productivity, particularly in services industries where flexible rostering has been a significant source of efficiency gains. The government and the union movement argue the opposite case: that more secure work improves productivity by lifting retention, justifying employer investment in training, and reducing the churn costs of a workforce cycling constantly through casual roles. Both effects are plausible, both are supported by some strand of academic literature, and neither has yet been convincingly measured in the Australian data specific to these 2022–2024 reforms, because too little time has passed. This site's companion analysis of union influence, wages and productivity examines the wage side of this same trade-off in detail; the honest conclusion here is that the productivity effect of the IR reforms is a live empirical question, not a settled one, and claims of certainty from either side of the debate should be treated with scepticism.
There is also a political-economy risk sitting underneath the competition-policy revival specifically, and it is worth naming because history offers a direct precedent. The original National Competition Policy program of the 1990s only delivered its estimated gains because state governments, facing real Commonwealth financial incentives and real political cover from a bipartisan reform consensus, actually implemented the harder parts of it — removing protections for their own government-owned utilities, opening regulated markets, and absorbing the local political cost of businesses that lost their protected position. The 2023 revival depends on the same willingness from state governments already juggling budget pressures of their own, examined elsewhere on this site in the analysis of state Labor debt, and on a bipartisan consensus that has not obviously reformed since the 1990s. A funding agreement announced at National Cabinet is a necessary first step, not a guarantee; the historical record of Commonwealth-state reform agreements includes as many stalled or watered-down implementations as full ones, and this article can only note that risk, not resolve it, since the outcome will not be visible in the data for years.
One further complication deserves to be stated plainly: the wage-productivity gap is not merely an academic concern. The Wage Price Index grew at close to 4 per cent through 2023 (approx.), a welcome result for workers after a decade of historically weak wage growth, while measured productivity growth over the same period was close to zero (approx.) (ABS, Wage Price Index; ABS, Australian National Accounts). When wages rise faster than productivity for a sustained period, the gap has to be absorbed somewhere — in higher prices, in thinner business margins, or in some combination of the two. Marion's workshop, described at the top of this article, sits exactly inside that gap: wages she is obliged and willing to pay rising each year, prices she can charge held back by competition, and the difference coming straight out of what is left over at the end of the year. That is not a story about greedy employers or unreasonable workers. It is the direct, mechanical consequence of wages moving without the productivity growth that would make the increase self-funding.
What the government got right
A fair audit has to credit what genuinely deserves it, and there is more here than the critique above might suggest. First, the government moved quickly to receive and publicise the Productivity Commission's 5-year inquiry rather than let it gather dust, and it explicitly named productivity, alongside full employment, as one of the two central long-run economic challenges in the Employment White Paper — a level of public candour about a genuinely unglamorous problem that is not guaranteed from any government, since weak productivity growth carries no obvious political upside and admitting to it invites exactly the criticism this article makes. Second, reviving National Competition Policy through National Cabinet is a considered, historically grounded choice rather than a gesture: the original 1990s program is one of the few structural reforms that both sides of Australian politics broadly credit with a durable, measurable lift to GDP, and choosing to revive that specific mechanism, rather than inventing something new and untested, reflects a reasonable reading of what has actually worked before.
Third, the Fee-Free TAFE and broader skills agenda, while it will not move the productivity numbers in the short term, is aimed at the right long-run lever: human capital, the skills and training embedded in the workforce, is one of the most consistently identified drivers of productivity growth in the economic literature, and building it is inherently a multi-year, low-visibility project that will not shift a quarterly ABS release regardless of how well it is designed. Fourth, this article's own analysis of the post-pandemic productivity fall shows that a meaningful share of it is a statistical echo of the 2020–21 compositional spike rather than a fresh, policy-driven decline — which means at least part of the weak recent data will likely unwind on its own as the post-reopening adjustment completes, regardless of any specific policy choice made by this or any government. And fifth, the structural, multi-decade nature of Australia's productivity slowdown, and the parallel slowdown across most advanced economies over the same broad period, genuinely limits how much blame can fairly be assigned to any single term of government. A three-year policy program cannot undo twenty years of slowing investment and technology diffusion, and judging this government purely on the productivity print at the end of its term risks holding it to a standard no government, of any political stripe, could plausibly meet.
Sixth, part of the government's migration settings, examined critically elsewhere on this site in the analysis of the per-capita recession no one campaigned on, plausibly cut in the other direction on productivity specifically, even where they hurt the per-capita growth story overall: skilled-visa arrivals were concentrated in engineering, health, construction and other capital-intensive occupations facing genuine shortages (approx.), and adding trained workers to bottlenecked sectors is one of the few productivity levers a government can pull relatively quickly, compared with the years-long lags on competition reform or capital investment. That this same migration surge diluted GDP per person economy-wide, as this site's companion analysis documents, is not a contradiction — a government can make a choice that helps one measure of national economic health while weighing on another, and a fair audit should say so rather than pretend the two topics are unrelated.
Naming the right problem is not the same as solving it — and on the government's own scoreboard, the Productivity Commission's, most of the prescribed treatment is still sitting on the shelf.
The risk to the future
Without productivity growth, real wages cannot durably rise — and the fiscal projection is built on sand
Productivity is not an abstract economist's concern; it is the ceiling on how much better off the next generation of Australians can become without working longer hours or paying more for everything they buy. If output per hour worked stays where it has been since the pandemic gave back its measurement gains, real wage growth cannot be sustained without either persistent inflation or a continuing squeeze on business margins of exactly the kind Marion's workshop is already living through — and one of those outcomes eventually threatens jobs and investment, while the other threatens the inflation control the Reserve Bank has spent years trying to re-establish. The risk runs deeper than household pay packets. The government's own long-run fiscal projections — the Intergenerational Report's forty-year outlook, and the nearer-term forecasts underpinning every Budget Paper No. 1 — assume productivity growth returns to and holds at around 1.2 per cent a year, a rate the economy has not come close to sustaining since well before the pandemic. Every dollar of projected future tax revenue, and every assumption about how affordably the country can fund a growing NDIS, an ageing population's health and aged-care costs, and rising defence spending, is built on that assumed rebound actually arriving. If it does not — if the last several years of close-to-zero productivity growth turn out to be the new normal rather than a temporary post-pandemic distortion — the budget's long-run numbers are not merely optimistic. They are built on an assumption the data has not supported for years, and the next government, of whatever stripe, will inherit both the bill and the harder, slower work of actually lifting the number this one has so far only diagnosed.