Productivity matters!

The push to address Australia’s ‘productivity problem’ has attracted universal support from across the political divide, conservative and progressive economists, and political commentators of all persuasions.

What though does a productivity agenda mean for charities and community organisations?

According to the Reserve Bank of Australia: “In economics, productivity refers to how much output can be produced with a given set of inputs. Productivity increases when more output is produced with the same amount of inputs or when the same amount of output is produced with less inputs.”

The fundamental problem with productivity and our sector is that if we define productivity simply in terms of inputs and outputs (as above), achieving better outcomes for our communities can create a loss of productivity.

If a 100-bed nursing home increases the number of skilled and experienced staff from 30 to 50, we know this increase will significantly improve the quality of care and reduce levels of disease and preventable death. From a purely input/output economic productivity perspective however, putting on more staff to service the same number of beds would make the nursing home less productive.

The new Albanese government is committed to improving productivity.

Less than 24 hours after Labor’s thumping election win handing the PM a significantly increased majority, Dr Chalmers declared the focus of the second term of the Albanese Government would be productivity: “Flatlining productivity is one of the biggest challenges facing our nation, and that’s why we need a big national effort to turn it around,” Dr Chalmers said.

The focus on productivity is not just a policy priority in Australia. Many countries around the world are facing disruptions to their economy. Relying on a stable and fair global trading system to ensure national supplies of goods and services is now seen as a risky approach to managing a nation’s economy. Boosting national productivity is part of the economic response to global trade uncertainty.

An important part of the productivity agenda is market employment versus non-market employment.

Market employment refers to jobs in the private sector. Non-market employment refers to most of the work we do in our sector - health, education, aged care, disability care. All the public sector and not-for-profit (NFP) jobs.

Non-market employment has been growing in Australia as governments have invested more in areas such as aged care, childcare and disability care. For many economists, that’s a big problem. The growth in non-market employment is a major contributor to Australia’s ‘productivity problem’.

“Alarmingly, the number of jobs in the market sector has only increased by 1.3 per cent since Q4 2022, versus 16.3 per cent growth in the non-market sector. In the 2024 calendar year, job growth in the non-market sector ballooned by 8.4 per cent compared to just 0.8 per cent in the market sector… this explosive growth in non-market employment, has pulled down the nation’s productivity.”

A national productivity agenda that focuses on increasing market outputs while cutting non-market expenditure would not be good for our sector or the communities we serve. And that could happen, particularly if we fail to challenge the measures of productivity some economists and commentators already use to push for cutbacks to government funded services, charities and NFPs.

Those of us working on reframing the productivity agenda to include quality outcomes are busy responding to the current Productivity Commission Inquiries which close for submissions on 6 June.

This is now a priority area for CCA. There are many ways to respond, but the most important from our perspective is to push back against the idea that we are less productive if we are healthier, better educated, better housed and cared for.

This week we’ve had a very pleasing boost in our advocacy efforts, and it comes from a surprising source. In handing down their Annual Wage Review decision for 2025 (a 3.5 per cent increase in minimum pay), the Fair Work Commission provided an explanation that included the following point – please excuse the rather long extract, but I think it’s important:

“[34] Therefore, leaving aside the mining sector, it appears that the national economy’s ‘productivity problem’ is largely a consequence of the non-market sector’s disproportionate growth in its share of Gross Value Added and hours worked.

“This flows from governmental policy decisions to improve the availability and quality of services in areas such as healthcare and social services. The measurement of productivity in the non-market sector is problematic since it is not possible to measure output by reference to the market prices paid for goods and services, as in the market sector.

“The Australian Bureau of Statistics (ABS) generally uses production costs as a proxy for output prices, meaning that when rapid employment growth occurs in the non-market sector, particularly in lower-paid employment, this has the consequence of increasing measured output by less than the increase in hours worked, thus lowering measured productivity. This is not a measure that operates by reference to the improved quality of outcomes that might be achieved by greater investment in the non-market sector, and it likely underestimates ‘true’ productivity improvements in the sector.”

The Fair Work Commission went on to use the example of a health intervention that demonstrated increased productivity using a form of ‘quality adjusted multifactor productivity’, a measure that takes account of quality health outcomes, not just the straight inputs (costs and labour) and outputs (units of service provided).

The productivity agenda is here, whether we like it or not. If we’re smart, it provides an opportunity to focus on quality outcomes, impact, and improve how we operate.

For some time, our sector has been struggling to find ways to more accurately describe the value we create. Just as for some time, charities and NFPs have been working to increase our productivity, not just inputs and outputs, but the kind of productivity that strengthens rather than cuts services for our communities.

The push for increased productivity will steamroll us if we don’t do the work to refine how we talk about our value, measure our outcomes, and deliver more effective impact in our communities.

Our sector can and should be part of shaping the national productivity agenda. The alternative is we allow it to shape us.

David Crosbie has been CEO of the Community Council for Australia for the past decade and has spent more than a quarter of a century leading significant not-for-profit organisations, including the Mental Health Council of Australia, the Alcohol and Other Drugs Council of Australia, and Odyssey House Victoria.