Australia’s fairness problem is holding productivity back

Professor Carl Rhodes writes that a productive economy depends on many things, especially on people believing that their contributions will be recognized and rewarded.

ASK AUSTRALIA business leaders It’s what keeps them awake at night, and the most common answer is productivity. Economic uncertainty is ahead of political risk, business transformation and financial management.

According to the Business Council of Australia (BCA), The problem lies largely with the government. Excessive regulations, outdated workplace laws, inefficient tax regulations and investment barriers are said to constrain productivity.

They argue that if these issues were resolved, Australia would:

‘…create an environment where businesses can thrive, workers can benefit and Australia can remain globally competitive.’

This is a well-worn story. If only the government would get out of the way, business would create stronger economic growth and everyone would share in the rewards.

But there may be another way to understand Australia’s productivity problem. Rather than looking only at regulation, taxation or labor market reform, it is worth asking whether current business practices and organizational cultures are themselves part of the problem.

The missing link between productivity and wages

Research presented by Warwick Smith and Adelajda Soltysik From the Policy Development Center (CPD) in the Australian Economic Community (ESA) at the annual conference earlier this month, it was revealed that workers’ wages have failed to keep pace with productivity growth since the 1990s.

The increasing share of productivity gains has failed to appear in workers’ pay packets, instead flowing into higher wages. Perhaps even more striking is that in the industries where productivity is growing the fastest, workers are falling far behind.

The problem isn’t just that productivity is outpacing wages; workers are actually going backwards. OECD just announced He noted that real wages in Australia have fallen by around 5 percent since 2021, one of the sharpest declines among developed economies. While living standards in OECD countries have generally improved since the pandemic, Australian workers have experienced a significant decline.

Australia’s labor market remains relatively strong and unemployment is low by historical standards. Australians are working. The question is whether they still get a fair share of the value created by their work.

For a country that prides itself on being fair, this raises a deeper question: What happens if people work harder and become more productive, helping to create more wealth while increasingly trying to reap the benefits in their own lives?

Fraying productivity bargain

A productive economy; It depends on more than regulation, technology, investment and efficient markets. It also relies on people believing that their contributions will be recognized and rewarded.

Workers are called upon to expend their effort, creativity, and commitment with the expectation that they will share in the prosperity they help create. The difference between productivity and pay is important because it weakens the expectation.

This is not just an abstract economic argument. This is the experience of Australians who find housing increasingly affordable, who discover each year their wages buy less at the supermarket, and who are constantly told that the economy is growing while their own living standards are stagnating.

Could this help explain why Australia’s productivity growth is weakening? Employees who feel valued, respected, and fairly rewarded are more likely to contribute the effort, initiative, and innovation needed to drive improvement.

Conversely, as the rewards of economic growth are increasingly captured by business while workers are left behind, the motivation and willingness to contribute that underpin long-term productivity can begin to erode.

Reconnecting effort and reward

Rather than looking to government alone to solve the productivity crisis, all this suggests that business may hold some of the solution.

Much of the debate focuses on how productivity growth can raise wages and living standards. Much less attention is paid to the possibility that the relationship could also go in the opposite direction.

Employees who can see a clear connection between their efforts and rewards are more likely to embrace change, invest in new skills, and contribute the discretionary effort that organizations need.

In this sense, Australia may not only have a productivity problem. There may be a fairness issue that takes a backseat to efficiency.

For years, many organizations have pursued strategies based on wage containment, workforce flexibility, outsourcing, and relentless cost-cutting. Such approaches may yield financial gains in the short term, but over time they can undermine the trust, loyalty, and commitment that drive long-term performance.

Perhaps Australia’s productivity crisis isn’t just a problem of government policy. Perhaps it is also the result of a business model that increasingly fails to reward the people whose work underpins its success.

If employees no longer see a meaningful connection between effort and reward, business should not be surprised when productivity becomes harder to find.

Carl Rhodes is Professor of Business and Society at the University of Technology Sydney. Wrote several books On the relationship between liberal democracy and contemporary capitalism. You can follow him on X/Twitter @ProfCarlRhodes.

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