What is productivity, and why does it matter?
How much we produce for each hour of work.
Over time it is what lets pay rise faster than prices.
The rule
- Productivity measures how efficiently inputs such as labour, capital or raw materials are used to produce outputs such as goods or services. It is the value of output divided by the amount of inputs used.
- Labour productivity is output divided by hours worked. Multifactor productivity is output divided by all inputs together, labour and capital.
- The Productivity Commission says it takes the average Australian worker one hour to produce what a worker made in a whole day in 1901. That let incomes rise while working hours fell.
- Hours of work needed to rent a three bedroom house a week: 22.1 in 1901, 11.8 in 2019 (Productivity Commission).
- GDP per hour worked was flat in the June quarter 2026 and down 0.2% over the year (ABS, 2 September 2026). The next figure is on 2 December 2026.
- On 3 November 2026 the Reserve Bank said weak productivity growth in Australia continues to constrain potential growth.
What people ask
Why does productivity matter for my pay?
The Productivity Commission says the more goods and services a society can produce from the same inputs, the higher its material standard of living. When each hour produces more, there is more to share out as pay, lower prices, profit or tax.
How is productivity measured?
Take output and divide it by the inputs. The Productivity Commission's example: a worker who makes 2,000 chocolate bars in a 40 hour week makes 50 bars an hour. For a whole economy the Bureau of Statistics uses real GDP per hour worked.
How does Australia compare with other countries?
The Productivity Commission says Australia's labour productivity is high by international standards but middling among wealthy nations. Its 2022 figures put Australia 16th of the 24 longest standing OECD countries.
Is productivity about working harder?
Not mainly. Factors the Productivity Commission lists include better technology, economies of scale, workforce skills, management practices and competition. The cafe model above gets more coffees an hour from a better machine, not from faster hands.