Australia's productivity trends: Details

[Page updated May 2019]


While there are different ways to define and measure productivity, we can put discussion of methodologies aside. Policy-related discussions and assessments of Australia's productivity performance are based on one set of numbers published by the Australian Bureau of Statistics (ABS) -- the independent and authoritative source of productivity estimates for Australia.

The ABS publishes different productivity measures -- labour productivity, capital productivity and multifactor productivity (MFP). Each of these measures is important in different contexts and each is examined in different places on this site. However, on this page, we will just look at MFP to get an impression of broad trends in Australia's productivity performance.

MFP is measured as the ratio of output produced to the combined use of labour and capital. It indicates the efficiency of production and specifically the rate at which labour and capital are combined to generate outputs of goods and services.

For more detail on measurement, see Measurement of productivity.
For guidance on the meaning of the productivity measures, see Interpretation of measures.

The main productivity trends

We've got a small issue in discerning long-term trends. The 'headline' (or 'official' or 'go to') ABS estimates refer to productivity in a group of 16 industries that form the 'market sector' (mainly, the private sector of the economy). But these estimates only go back as far as 1994-95.

To discern long-term trends, we can pick up an alternative series for a sub-group of 12 industries -- what the ABS refers to as the 'selected industries' group. These estimates go back to 1973-74. (For details on the industries covered in the 16- and 12-industry groups, see Measurement of productivity.)

The market sector estimates are shown in Figure 1, and the long-term trends from the selected-industries estimates are shown in Figure 2.

Index, 1994-95 to 2017-18, 2016-17=100
Estimates are based on the hours worked measure of labour input and cover the 16-industry market sector
Numbers on the chart are annual average rates of growth (per cent per annum) between the indicated productivity peaks. Values for 1994-95 at the beginning and for 2017-18 at the end are used even though they have not been declared as peaks by the ABS
Source: ABS Cat. No. 5260.0.55.002
Index, 1973-74 to 2017-18, 2016-17=100
Estimates are based on the hours worked measure of labour input and cover the 12 'selected industries' group
The numbers on the chart are annual average rates of growth between the indicated productivity peaks. However, the ABS has not declared the end-point, 2017-18, as a productivity peak.
Source: ABS Cat. No. 5260.0.55.002

Figure 2 shows four main periods in Australia's productivity performance since the mid-1970s: 
  • a baseline period, 1973-74 to 1993-94, over which the rate of MFP growth averaged 0.6% a year
  • a surge period, 1993-94 to 2003-04, over which the average rate of MFP growth lifted three times to 1.9% a year
  • a slump period, from 2003-04 to 2011-12, in which productivity was flat overall, with very slight negative growth
  • a recent period of recovery, since 2011-12, in which productivity growth has averaged 0.6% a year.
While the return to productivity growth since 2011-12 is welcome, the performance is not stellar. It has not made up for the ground lost during the slump. MFP in 2017-18 remains only 3.6% above its 2003-04 level.

The surge and the slump are quite remarkable, but for very different reasons. 

MFP growth of 1.9% a year during the surge is extremely high, not only by historical standards but also by international standards. (At one point, it was as high as 2.6% a year over a productivity cycle). It is unusual for a developed economy to have a rate of productivity growth that high.

No overall MFP growth during the slump is also extraordinary. No MFP growth over an 8-year period is unprecedented historically and internationally. Indeed, at face value, it does not make sense. There is always at least some productivity growth over such a long period due, if nothing else, to the march of technological progress. And advances in information and communications technologies, as a prime example, have brought widespread and deep change over the 2000s.

The surge, the slump and recent developments warrant closer examination. I do that on other pages (take links from the Navigation box or at the bottom of this page). 

The complete picture

Just for completeness, here is the more-detailed picture on Australia's productivity trends as revealed in published ABS estimates. These estimates show underlying rates of productivity growth for shorter intervals within the broad periods identified above. These shorter periods are productivity cycles, as identified by the ABS. The average annual rates of growth over productivity cycles are part of the published productivity accounts.1

The MFP growth rates are shown in Figure 3 (16-industry market sector) and Figure 4 (12 selected industries group). 

The main point of note (from Figure 4) is that the surge period consists of a sub-period, from 1993-94 to 1998-99, with an extremely high MFP growth rate of 2.6% a year and another sub-period, from 1998-99 to 2003-04, with an MFP growth rate closer to the long-term average.2
2011-12 to 2017-18 is an incomplete cycle
Source: ABS Cat. No. 5260.0.55.002
2011-12 to 2017-18 is an incomplete productivity cycle
Source: ABS Cat. No. 5260.0.55.002

  1. Productivity can be quite volatile from year to year, with sharp changes coming, especially, with business cycle variations. Year-to-year rates of productivity growth, in these circumstances, are quite misleading indicators of underlying rates of productivity growth. The ABS addresses this issue by calculating productivity growth rates from the same point in successive productivity cycles -- from one productivity peak to the next productivity peak. The growth rates over productivity cycles represent underlying rates of productivity growth. (For more details on calculating underlying rates of productivity growth and the ABS productivity cycle method, see Measurement of productivity.)
  2. The grounds for specifying the start and end of the productivity surge can be contested. Looking at Figure 4, the 1993-94 to 1998-99 cycle stands out clearly as a productivity surge period. I have also included the next cycle, 1998-99 to 2003-04, in the surge period mostly because it remains distinct from the two slump cycles that follow. But then the rate of growth in the cycle prior to 1993-94 differs little from the rate in the 1998-99 to 2003-04 cycle. However, the start of the productivity surge is clouded by the deep recession around 1990. I covered various views on the start and strength of the productivity surge in Appendix 1 of Parham (2004). The only conclusion that could be drawn with confidence was that the surge was clearly established by 1993-94. 

Key references
  • Parham, D. (2013),’Australia’s Productivity: Past, Present and Future’, Australian Economic Review, vol.46, no. 4, pp 462-72.
  • Parham, D. (2004), ‘Sources of Australia’s Productivity Revival’, The Economic Record, vol.80, no.249, pp.239-257.