Australia’s long-term economic prosperity is under threat due to a sustained slowdown in productivity growth. Structural challenges have exacerbated this and the policy responses to COVID-19 – while protecting jobs and businesses – may have hindered longer-term productivity growth. Renewed reform and innovation could reverse this trend. This paper outlines the issue and context, defines how productivity is measured and explores how Australia can improve its labour productivity.

Key findings

• Between 2010–20, Australia recorded its weakest productivity growth in 60 years.
• Labour productivity has accounted for over 70% of Australia’s per capita economic growth over the past 40 years.
• Reduced multifactor productivity (MFP) was the largest contributor to this slowdown, reflecting reduced efficiency in combining labour and capital.
• COVID-19 policy responses, such as JobKeeper, may have impeded productivity-enhancing reallocation of labour and capital.
• Modest productivity growth improvements can have major long-term economic benefits, including significantly higher gross domestic product (GDP).