Wage Growth Firmly on Agenda at Australian Productivity Roundtable

The Economic Reform Roundtable aims to tackle Australia’s productivity slowdown.

HR Policy Global Perspective: The event in late August will include representation from key business organisations, including the Australian Industry Group and the Business Council of Australia, as well as the peak Union body (the Australian Council of Trade Unions).  This is a crucial opportunity for the government to build consensus across political, business, union, academic, and community leaders on transformative, long-term economic reforms.

Why has productivity stagnated in Australia?

While productivity growth is slowing globally, Australia faces unique barriers—including geography, industry mix, skills gaps, and policy inertia—that make lifting productivity more difficult than in many peer economies:

• The Australian population is relatively small and spread across vast distances, reducing economies of scale and raising transport and infrastructure costs.   
• A large portion of GDP comes from mining and resources, where productivity is already high but hard to improve further without major innovation.
• Productivity growth is slower in services, which dominate employment.   Services accounts for around 70% of GDP versus manufacturing at around 7%.
• Political and institutional reluctance to pursue bold, long-term changes hampers productivity momentum.

Australia has shifted over decades from traditional manufacturing to services, driven by globalization, resource exports, and comparative advantage.  Services growth reflects rising demand for healthcare, education, financial services, and technology in a developed economy.

Australia has seen weak wage growth, averaging around 2% annually, even as productivity experienced modest improvements.  This disconnect means workers’ real incomes have barely increased, impacting household living standards and consumption.

Increased productive (and hence wage growth) are difficult to achieve in the services sector.  Many services (like healthcare, education, aged care, and hospitality) rely heavily on human labour and personal interaction, which are hard to automate or scale.  Unlike manufacturing, where machines can mass-produce goods with low marginal costs, services often lack such scalability.  Each unit of output (e.g. a haircut or legal consultation) typically requires a new unit of labour.

AI plays a crucial role in increasing productivity and wage growth in the services sector. Administrative and routine tasks can be automated, freeing up staff to focus on higher-value, client-facing, or strategic work, improving overall efficiency.  AI can analyse vast amounts of data to support faster, more informed decisions, improving outcomes in sectors such as finance, law, customer service, and health.

The Bottom Line

The Economic Reform Roundtable presents a key moment where employers and unions both have a seat at the table. Employers aim to align reforms with business needs, especially productivity and investment, while unions seek to ensure workers benefit equitably from any efficiency gains. Its outcomes could shape Australia’s Industrial Relations framework, fiscal policy, and productivity trajectory for years to come.