Wages for 95 Percent of Australia’s Labour Force in Line With Productivity: Report

Staff at Lux Cafe serve food in Melbourne, Australia, on Oct. 22, 2021. Darrian Traynor/Getty Images

The wages of almost all Australian workers, except for the mining and agriculture sectors, are in line with their productivity levels, a new report has found.

The Productivity Commission has released new research (pdf) identifying the gap between wage growth and productivity growth across all sectors of the Australian economy.

As wage growth is driven by the improvement in productivity in the long term, it is important for policymakers to find out whether there is a wage decoupling–the situation in which productivity growth outpaces wage growth–in various sectors.

Overall, there was a relatively small gap between productivity growth and wage growth in all industries outside mining and agriculture, with an average wage decoupling rate of less than one percent.

In addition, wage growth in more than half of those sectors was equal to or even exceeded productivity growth.

However, wage decoupling was quite significant in the agriculture and mining industries, reaching 4.9 percent and 3.4 percent, respectively.

The report found that the gaps in these two sectors were mainly caused by the sharp growth in commodity prices due to recent global events since 2016, including the COVID-19 pandemic and the war in Ukraine.

While rising commodity prices depress real wage growth, it has little effect on productivity.

The Impact of Wage Decoupling on Australians’ Income

Despite the agriculture and mining industries accounting for 18 percent of Australia’s GDP, the wage coupling situation observed in these sectors had a limited impact on Australians’ income as a whole.

Specifically, the report found that the average real wage of Australian workers was around $106,500 (US$68,900) in 2023.

If there had been no wage decouple in all the sectors, the average real wage would have increased to over $110,000.

In other words, Australian workers could bring home over $3,000 more if their wages kept up with productivity improvements.

While it was tempting for the government to lift wage growth by bridging the wage-labour productivity gap with some policies, the Productivity Commission said raising productivity would be more effective.

The commission pointed out that if Australia’s productivity growth had remained at the 1990s level of 2.2 percent, workers would have earned an additional $25,000 a year.

“In other words, the impact of boosting productivity far outweighs the impact of bridging the observed productivity wage gap,” the report states.

“And importantly, productivity remains the key to continued wage growth and long-term prosperity.”

Australia’s Productivity Growth Drops to Lowest Level in 60 Years

The new report comes after the commission revealed in August that Australian’s productivity improvement had fallen markedly in the past two decades and was currently at the lowest level in 60 years.

Specifically, Australia’s labour productivity growth dropped from around 2.3 percent in 1990-2000 to about 1.2 percent in 2010-2020, well below the 60-year average of 1.7 percent.

While other advanced economies have reported similar situations, Australia’s labour productivity ranking fell ten places from sixth in the OECD to sixteenth between 1970 and 2020.

The commission also found that many government-subsidised industries, such as healthcare, aged care, disability support and education, had difficulty raising their productivity due to a lack of competition and contestability, which restricted their performance and innovation.