PRODUCTIVITY AND PROGRESS

Productivity is the efficiency with which an economy transforms inputs (such as labour and capital) into outputs (such as goods and services). When a nation achieves productivity growth, it is able to produce more goods and services from the same quantity of labour, capital, land, energy and other resources. In turn, improved production efficiency can generate higher real incomes and lead to long-term improvements in Australia's living standards.

Productivity growth is an important indicator of whether life in Australia is improving, as it contributes significantly to the overall productive capacity of the national economy. In the future, productivity growth is expected to be the main driver of economic growth and living standards in Australia. This is especially important given the economic challenges that Australia faces. The Australian Government's Intergenerational Report 2010 noted that "With the ageing population, productivity growth will be key to driving future growth in living standards".

In this section, multifactor productivity (MFP), measured as the amount of GDP produced per unit of a combined bundle of labour and capital, is used as the headline indicator for productivity improvement in Australia. MFP statistics are designed to inform how much economic growth originates from productivity growth (increased outputs from the same quantity of inputs) and how much from increased inputs (increased outputs from more capital goods or additional working hours). At present, it is the most comprehensive available measure of productivity in Australia.

Further information regarding investment in various forms of knowledge and innovation has been included to provide context around the broad subject of productivity in Australia. Examples include the number of businesses innovating, the amount of money spent on research and development, the adoption of Internet and information technologies by businesses, and the quality of labour in Australia. While the influence of these indicators on overall productivity is varied, they help to illustrate the degree to which Australia is engaged in improving productivity, and provide context to understand which levels of the economy this is occurring.

For a full list of definitions used in Productivity, please see the Productivity glossary.