Australia’s labour productivity has averaged just 1.2 per cent since 2005. That’s about half the rate we achieved in the 1990s. And that’s a problem because of Paul Krugman’s famous aphorism: “A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
And seemingly small differences in annual rates have big medium-run effects. If we grow productivity at 2.5 per cent a year, living standards will double every 28 years. If we grow productivity at 1 per cent a year, our living standards will increase only by a third over the same period.
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