Australia’s productivity growth has reverted to the same stagnant pattern as before the pandemic, according to the Productivity Commission’s latest quarterly report.
Productivity is complex and often misunderstood in media and policy debates. So before we read too much into this latest data, here are six key things to understand about productivity.
1. It’s about quantities, not costs
Productivity “measures the rate at which output of goods and services are produced per unit of input”. So it’s about how many workers does it take to make how many widgets?
Most Australian workplace managers don’t know how to measure productivity correctly.
If someone says “higher wages mean lower productivity”, they don’t know what they’re talking about. Wages aren’t part of the productivity equation. People often cite “productivity” as a reason for a policy they like because they can’t say “we like higher profits”.
In fact, high wages can encourage firms to introduce new technology that improves productivity. If labour becomes more expensive, it may be more profitable for firms to invest in labour-saving technology.
But lower productivity isn’t always a bad thing. Sometimes higher selling prices can lower productivity. It seems odd, but works like this: if prices for commodities such as iron ore or coal are high, it becomes profitable for mining companies to dig through more rock to get to it.
