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Productivity Commission reveals Australians missing out on $25k pay rise due to lost productivity gains


Australians are missing out on an extra $25,000 in their pay packets due to the global slide in productivity growth since the 1990s, new research from the Productivity Commission has revealed.

Productivity – how efficiently labour can produce goods and services – has become a political flashpoint in recent months, amid warnings that the nation’s anaemic productivity growth, if not reversed, could lead to a further erosion in living standards.

Indeed, over the last decade, labour productivity growth has averaged just 1.1 per cent a year – the slowest rate in 60 years.

Recently released GDP figures showed that labour productivity, a measurement of output per hours worked, had fallen by 3.5 per cent in the 12 months to June, to now sit at their lowest levels since May 2016.

In its report, the Commission found that if productivity growth had kept pace with the average recorded in the 1990s, at 2.2 per cent, real annual incomes would be almost $134,000 in 2023, over $25,000 higher than today’s average of nearly $107,000.

Under a lower assumption where productivity growth was maintained at its 60-year average of 1.8 per cent, average wages would have been greater than $118,000 in 2023.

The report also hits back against claims by the union movement and some progressive quarters that productivity gains have not been shared with workers in the forms of higher wages growth.

It claims that for all industries except mining and agriculture – which accounts for 95 per cent of workers – the difference between productivity and wages growth has been minimal.

“Over the long term, for most workers, productivity growth and real wages have grown together in Australia,” the report reads.

However, in mining and agriculture sectors, which accounts for the remaining 5 per cent of workers, wage increases have decoupled from productivity gains, due to a boom in commodity export prices.

The Commission noted that for the more than nine in 10 workers outside the agriculture and mining sectors, the link between real wage growth and productivity had remained robust.

For 95 per cent of workers, average annual wage growth was approximately 0.12 percentage points lower than labour productivity growth.

The Commission found this would equate to wages being approximately $3,000 higher for these workers if the gap was closed, with lost income instead flowing through to businesses.

“As a consequence, the share of income going to that 95 per cent of labour has declined by less than 1 percentage point over the past 27 years,” the report stated.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.