Australia’s productivity growth continued to lose pace in 2017/18, carrying on a trend that emerged at the end of the mining boom five years ago.
Less investment in equipment has contributed to the phenomenon, the Productivity Commission says in its annual productivity update.
Economy-wide labour productivity grew by 0.2 per cent in the year, according to the report published on Tuesday.
That is well below the market sector’s long-running trend rate of 1.7 per cent per year from 1974/75 to 2017/18.
Labour productivity in the market sector – where measurement of performance is most accurate and which accounted for three-quarters of hours worked in 2017/18 – was 0.4 per cent.
That marked a further slowdown from the past two years.
Growth in multifactor productivity, which covers productivity improvements not driven by the workforce or equipment, also slowed to 0.5 per cent.
The weakness can be particularly attributed to a slowdown in how much is being spent on capital, or assets that improve performance.
“This is troubling because investment typically embodies new technologies, which complement people’s skill development and innovation,” the commission’s report states.
“This is especially so for investment in research and development, where capital stocks are now falling.”
Mining labour productivity actually fell by 0.4 per cent, but the picture was not so grim for some other industries.
Productivity growth was up by 8.2 per cent in the administrative services sector, 6.9 per cent in the finance and insurance industry and 4.1 per cent in the professional services sector.
But across the economy, productivity growth has not translated into real wage growth since 2011/12, with hourly wages just keeping up with inflation.
The commission noted this hasn’t increased household income inequality, but is unclear on how long the trend may persist.
“The historical experience suggests that over the long run, an ever-widening gap between real consumer wages, real producer wages and labour productivity is improbable.”
Despite Australia’s mediocre productivity growth by local standards, the nation still has a high level of productivity compared with many economies, with better living standards to match.