PRODUCTIVITY

ABS productivity measures are important indicators for gauging Australia's economic progress, and provide a basis for governments and the broader community to examine aggregate trends in productivity growth over the longer term.

The most comprehensive Australian measure of productivity available is multifactor productivity. It gauges the efficiency with which inputs are transformed into outputs. In the short term, this reflects the impact of an array of factors, such as the utilisation of available labour and capital, economies of scale, and resource reallocation. In the long-term, it represents improvements in ways of doing things (technical progress), which is the ultimate source of economic growth and higher living standards.

During the productivity growth cycle of 1998-99 to 2003-04, there was an overall improvement in productivity. Output growth for the market sector grew at an average rate of 3.2% per year. Input growth during this period was 2.1% per year, with labour growing at 1.0% and capital at 3.4% on average each year. The 1.1% difference between input growth and output growth was the average annual improvement in productivity.

In the most recent productivity growth cycle (2003-04 to 2007-08) there was an overall decline in Australia's productivity. Output growth during this cycle averaged 3.6% per year, while total inputs grew at an average 3.8% per year (labour at 2.4%, capital at 5.4%). The -0.2% difference between input growth and output growth was the average annual decline in productivity.