Long term trends

Productivity data are volatile from year to year and are also cyclical for a number of reasons, including that employment growth tends to lag output growth. To overcome these problems, the ABS measures underlying productivity trends by calculating annual average rates of growth between peaks in productivity cycles. Figure 1 displays the ABS estimates. The height of the bar represents growth in labour productivity (output per hour worked), which comprises capital deepening (increases in the capital-labour ratio) and growth in multifactor productivity (output per combined input of labour and capital). The estimates cover Australia's market sector.

Labour productivity grew at an annual rate of 3.3 per cent per year in the late 1990s cycle (1993-94 to 1998 99), the fastest rate on record. This resulted from very strong multifactor productivity growth of 2.3 per cent per year, more than a full percentage point per year above the long-run average. Productivity grew rapidly in many industries during this period, including communication services, finance and insurance, electricity, gas and water supply and wholesale trade. (See The sources of Australia's productivity revival for further information on the late-1990s cycle.)

Since that time, productivity has slowed somewhat. Labour productivity grew by 2.2 per cent per year in the early-2000's cycle (1998-99 to 2003-04) and multifactor productivity grew by 1.1 per cent a year.

Figure 2 shows annual multifactor productivity growth in each of the market sector industries during the late-1990s cycle (horizontal axis) plotted against annual multifactor productivity growth in the early-2000s cycle (vertical axis). The slowing between the late 1990s and the early 2000s reflected a return to more normal rates of productivity growth in some of the industries which contributed the most to the late 1990s productivity surge. (See Is Australia's productivity surge over? (PDF - 82 Kb) (external link) for further information on the early 2000s cycle.)

Looking across all of the productivity cycles, variations in Australia's labour productivity growth have generally been explained by variations in multifactor productivity growth. The rate of capital deepening has varied across cycles in only a narrow band. The exception was the mid-1980s cycle (1984-85 to 1988-89), during which growth in labour productivity was held back mostly by very weak capital deepening, but also by weaker multifactor productivity growth. This was a period of strong growth in both capital and labour inputs.

Taking a step further back and looking at trends over the past three decades shows that different industries have very different productivity growth trajectories. Aggregate market-sector MFP growth over the long term (1974-75 to 2007-08) has been 1.1 per cent per year. Five industries - agriculture, manufacturing, transport and storage, communications and electricity, gas and water supply - have achieved relatively high MFP growth over this period. In particular, the MFP growth rate recorded by communication services was more than three times greater than the market sector MFP growth rate. Other industries, such as cultural and recreational services, accommodation, cafes and restaurants and mining, have achieved lower rates of growth overall and have even seen productivity decline during certain periods of strong investment or rapid expansion of employment.

Contact: Don Brunker, Assistant Commissioner, Productivity Analysis Branch, 02 6240 3342.

Table 1. Productivity growth and related measures over productivity cycles

Average annual growth, per cent

Data source: ABS, Australian System of National Accounts, 2007-08.

Figure 1. Labour productivity growth over productivity cycles

Average annual growth, per cent

Data source: ABS, Australian System of National Accounts, 2007-08.

Table 2. Multifactor productivity growth by industry

Data source: Calculations are based on data from ABS, Experimental Estimates of Industry Multifactor Productivity, 2007-08.

Figure 2. Multifactor productivity by industry in the two most recent productivity cycles

Per cent per year

Data source: Calculations are based on data from ABS, Experimental Estimates of Industry Multifactor Productivity, 2007-08.