Australia’s labour productivity has effectively stalled, with new analysis showing growth has collapsed to zero, placing the country near the bottom of advanced economies since the COVID-19 pandemic.
According to an OECD assessment cited in The Australian Financial Review, Australia ranks second-last among wealthy nations for productivity growth in the post-pandemic period. Economists warn the trend poses a serious threat to long-term living standards.
EY chief economist Cherelle Murphy says the decline is being driven in part by “capital shallowing” — a situation where business investment in machinery, equipment and technology fails to keep pace with workforce growth.
“We’ve had strong labour market performance, but at the same time we have not had particularly strong business investment or innovation,” Murphy said. “You’re not going to get strong productivity growth when workers are using capital equipment that isn’t keeping up with the number of workers.”
Corporate spending on research and development in Australia also lags behind that of comparable economies, further weighing on productivity gains.
Independent economist Gerard Minack has highlighted that private business investment as a share of GDP is tracking close to recessionary levels. Investment in new machinery and equipment — essential for lifting worker output — has fallen to around 4.6 per cent of GDP, roughly half the level recorded two decades ago, according to analysis by IFM Investors’ Alex Joiner.
At the same time, rapid population growth has sharply expanded the labour force, largely through immigration, increasing the denominator of the capital-to-labour ratio. Australia’s population has grown far faster this century than in most developed nations, outpacing investment in infrastructure, housing and productive capital.
Economists argue the country has failed to provide sufficient equipment, technology, housing and infrastructure for millions of additional workers and families, diluting capital per person and dragging down productivity and quality of life.
Analysis by Mark the Graph shows Australia’s multifactor productivity growth has also fallen to zero, with economic expansion now driven almost entirely by increases in labour hours rather than efficiency or technological improvement.
“The 1990s productivity dividend is spent,” the report concluded.
With Australia’s manufacturing sector under pressure from high energy costs and ongoing deindustrialisation, economists warn it will be increasingly difficult to reverse the trend through capital deepening. Rising power prices linked to net-zero policies and gas market failures are pushing manufacturers offshore, discouraging domestic investment.
Adding to the challenge, federal projections show Australia’s population is set to grow by more than 13 million people over the next 40 years — equivalent to adding another Sydney, Melbourne and Brisbane combined. Experts warn meeting the required level of housing, infrastructure and business investment to maintain productivity per person would be unprecedented.
Without a major shift in policy, analysts say Australia risks entrenching an era of weak productivity growth and declining living standards.
