The corporate media, economists and employers are complaining that productivity in Australia is too low. In fact, some describe it as a national disaster. But is it even a problem?

The Reserve Bank of Australia explains productivity thus: “In economics, productivity refers to how much output can be produced with a given set of inputs. Productivity increases when more output is produced with the same amount of inputs or when the same amount of output is produced with less inputs.”

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Employer groups have long argued for lower taxes to use the resulting higher profits for more investment, into the latest technology (and inevitably into technology that replaces workers).

Australian Bureau of Statistics data shows a multi-factor productivity, which is a combination of labour and capital productivity. The conclusion is that capital productivity has not added much to raising productivity in recent years.

Ian Verrender from the ABC argued on May 27: “In most cases, [improving productivity] is through investment in better equipment or technology for workers. Often, it is through better management practices.” He added that “while the business lobby groups bang on about how governments need to reduce red tape, lower taxes and keep wages under control, the solution largely is in their hands”.

But increased profits do not automatically lead to investment that would improve productivity. As Verrender noted, “When interest rates were declining after the GFC [global financial crisis], most big corporations handed back their improved earnings to shareholders as bigger dividends.”

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