Most Australian workers’ wages are in line with their productivity, except for the agriculture and mining industries.
A new report released by the Productivity Commission has found that the wages of almost all Australian workers, except for those in the mining and agriculture sectors, are in line with their productivity levels. The report identified the gap between wage growth and productivity growth across all sectors of the Australian economy, highlighting the importance of understanding whether there is wage decoupling in various sectors.
The report revealed that there was a relatively small gap between productivity growth and wage growth in all industries outside of mining and agriculture, with an average wage decoupling rate of less than one percent. In fact, wage growth in more than half of these sectors was equal to or even exceeded productivity growth. However, in the agriculture and mining industries, wage decoupling was quite significant, reaching 4.9 percent and 3.4 percent, respectively.
The report attributed the gaps in these two sectors to the sharp growth in commodity prices, driven by recent global events such as the COVID-19 pandemic and the war in Ukraine. While rising commodity prices have had little effect on productivity, they have depressed real wage growth.
Despite the significant wage decoupling in the agriculture and mining industries, the impact on Australians’ income as a whole has been limited. These sectors account for 18 percent of Australia’s GDP, and the report found that the average real wage of Australian workers in 2023 was around $106,500. If there had been no wage decoupling in all sectors, the average real wage would have increased to over $110,000.
The Productivity Commission emphasized that raising productivity would be more effective in lifting wage growth than bridging the observed productivity-wage gap with policies. If Australia’s productivity growth had remained at the 1990s level of 2.2 percent, workers would have earned an additional $25,000 a year. The report states that “the impact of boosting productivity far outweighs the impact of bridging the observed productivity wage gap” and that productivity remains the key to continued wage growth and long-term prosperity.
This new report comes after the Productivity Commission revealed in August that Australia’s productivity growth had fallen significantly in the past two decades and was currently at the lowest level in 60 years. Labour productivity growth dropped from around 2.3 percent in 1990-2000 to about 1.2 percent in 2010-2020, well below the 60-year average of 1.7 percent. Australia’s labour productivity ranking also fell from sixth in the OECD to sixteenth between 1970 and 2020. The report highlighted that government-subsidised industries faced challenges in raising their productivity due to a lack of competition and contestability, which constrained their performance and innovation.