A policy think tank has argued that Australia’s poor productivity performance has been falsely singled out as the main culprit for falling living standards.

The Australia Institute’s Centre for Future Work has argued that claims of a ‘productivity crisis’ were overblown, and that the true culprit for falling living standards was sluggish wage growth and income inequality.

“Australia’s so-called ‘productivity crisis’ is massively exaggerated. Low productivity is not to blame for the problems facing households today, like soaring interest rates, prices or low wage growth,” Greg Jericho, chief economist at The Australia Institute‘s Centre for Future Work, said.

“This research also shows that sluggish productivity is caused by companies investing far less in things like machinery, equipment and research.”

Research from the Productivity Commission indicated that Australia’s productivity performance hasn’t improved in 10 years, and flagged that reform would be needed to address the issue.

Over the long run, productivity is linked to growth in living standards, as it increases the level of wage growth possible without sparking inflation. This is because it enables the average worker to produce greater value with fewer inputs.

“Productivity is how people can get real wage rises,” RBA governor Michele Bullock told journalists in April.

“If productivity didn’t pick up, then that means that the rate of nominal wage growth that can be sustained and be in line with the inflation target is lower.”

Research from Westpac found that over 50 per cent of Australia’s growth in living standards over the past 40 years had been driven by productivity growth, measured by the proxy of gross national income per capita.

Productivity Commission chair Danielle Wood said that the average worker could be thousands of dollars better off annually if productivity growth picked up to its historical rates.

“If we could boost growth from its current level to its historic average, adult Australian full-time workers would be at least $14,000 a year better off by 2035,” she said.

However, the Australia Institute argued that productivity benefits in recent decades have largely flowed towards high-paid executives, shareholders and profits rather than typical workers.

“Since March 2000, real labour productivity has grown two-thirds faster than the national accounts measure of wages deflated by overall GDP prices,” it noted.

If real wages had grown at the same rate as productivity since 2000, average wages would be 18 per cent higher, $350 per week, or $18,000 a year, analysis by the Australia Institute found.

“The relationship between productivity and wages is neither automatic nor proportional,” it said.

“Median wages (paid to the worker at the mid-point of the wage ladder) have grown slower than average wages in Australia since the turn of the century, reflecting a growing gap between high-income workers and the rest of the labour force.”

In the 2024 financial year, ASX100 chief executives were paid 55 times the amount of the average Australian worker, a June 2025 report by the Australian Council of Superannuation Investors found.

While the average Australian worker earned $104,000, the average ASX100 CEO earned $5.7 million.

The think tank also said productivity benefits had largely flowed into corporate profits instead of wage rises for workers over the past 40 years. Labour compensation’s share of GDP fell from 52.4 per cent to 47.9 per cent from 1980 to 2024, while the share of gross corporate profits rose from 17.6 per cent to 25.7 per cent.

The Australia Institute argued that productivity benefits did not automatically “trickle down” to workers in terms of improved wages or living standards, and that calls to boost productivity through wage cuts, tax cuts, deregulation, or reduced unionisation would not benefit the average Australian.

It instead called for policies to reduce the costs of essential goods such as food and housing, stronger collective bargaining and wage regulations to boost workers’ power to demand wage growth in line with productivity growth, and to cap CEO compensations to reduce the share of GDP flowing to the highest income earners.

“The benefits of productivity should not go straight to profits, shareholders or fat cat CEOs. They should be shared with workers in the form of wages which grow at a similar rate,” Jericho said.