A Senate Select Committee is holding an Inquiry into Productivity in Australia. It published a Discussion Paper, to guide submitters, early in 2026. Our submission responded to this, and addressed seven of the most important questions in the Discussion Paper, with answers also being relevant to a number of other questions.
Our research showed that:
- Measuring labour productivity – output per unit of labour input – is fairly straightforward if there is a single output that is sold in a free market, and the focus is on a single input (labour), but many bold assumptions are made in estimating multi-factor productivity.
- Measures of productivity in the non-market sector are especially problematic, and there is no evidence for a ‘lacklustre’ productivity performance in the non-market sector.
- Labour productivity growth is very erratic, and best measured over ‘growth cycles’.
- Exchange rates movements are more influential than variations in productivity in determining competitiveness movements.
- Although higher labour productivity raises potential for higher wages, productivity and wages have instead been ‘decoupled’.
- None of the economic reforms of the 1980s and 1990s led to a sustainable increase in labour productivity growth – instead, labour productivity growth has declined over the long term.
- The common theme, behind the factors behind Australia’s longer-term productivity slowdown, concerns the capabilities of business and managers.
- While labour productivity is certainly influenced by the relative costs of labour and capital, there is little evidence that policy settings that favour labour over capital retard productivity growth.
- The focus of policies aimed genuinely at improving Australia’s productivity trajectory should focus on reversing factors we show to be critical in decline, by: boosting investment and innovation; building a more diversified, balanced, sustainable economy; investing in people and skills; enhancing physical and social infrastructure; valuing labour; and addressing working hours.
The Inquiry is due to report on 30 September 2026.