Australia’s productivity problem is a capability problem in disguise

Every productivity conversation in this country eventually lands on a desk in HR. The numbers driving it are not kind, writes Ben Satchwell.

The Productivity Commission has called the past few years Australia’s worst run of labour productivity growth on record. Output per hour fell 1 per cent over the year to the March 2025 quarter, and the 20-year average annual growth rate has slipped to 0.8 per cent (Productivity Commission; ABS). By the middle of 2025, labour productivity had effectively returned to where it sat at the end of 2019. Four years, no net gain.

When boards go hunting for the lever, they reach for the workforce. Train people, build skills, lift output. So the money flows. Australian organisations were tipped to spend around $8 billion on learning and development in 2024 (RMIT Online). Yet 65 per cent of Australian employers told the World Economic Forum that skills gaps are the biggest single barrier to transforming their business, a figure that has climbed since 2023 (WEF Future of Jobs Report 2025).

Spend is up. Confidence in the workforce’s capability is down. That gap is the real problem, and no amount of effort closes it on its own.

HR keeps measuring consumption, not capability

Here is what we tend not to say out loud. Most of what HR and L&D report to the business measures consumption, not capability. Courses completed. Hours logged. Completion rates. Engagement scores. Spend per head. Every one of those can rise while the thing the business actually needs, people who can do the work to a known standard, stays exactly where it was.

I have sat in reviews where a team proudly reported 94 per cent completion on a module and could not answer a simpler question: are people doing the task any better now? Nobody had defined what better looked like, so nobody could measure it. The training happened. Whether the capability landed was anyone’s guess.

Wellbeing and engagement matter, and I am not waving them away. But they tell you about how people feel and how much they consumed. They tell you very little about whether anyone can now do something they could not before. When HR’s entire contribution to the productivity debate is framed that way, we hand the strategic conversation to finance and operations and settle into the cost column.

Most organisations cannot describe what good looks like

The deeper issue is that most organisations can describe their activity in forensic detail and cannot describe their capability at all. Ask a leadership team what good looks like for a business-critical role, at the level of behaviour you could actually observe, and you usually get adjectives. Strong communicator. Commercially astute. Strategic. You cannot assess an adjective. You cannot develop one or measure movement in it, which means you cannot improve it on purpose.

Capability is not a vibe. It is the demonstrable ability to do defined work to a defined standard. If you cannot put it in terms a manager could observe and rate, you have no way of knowing whether your $8 billion shifted anything. That is why completions climb, and performance flatlines. We pour investment into the top of the funnel with no gauge at the bottom.

What better instrumentation looks like

The fix is not more spend. It is better instrumentation. None of it is exotic.

• Define capability in observable terms for the roles that matter most. Write down what competent performance looks like in language a manager could rate without reaching for a dictionary.
• Baseline it. Assess where people genuinely sit against that standard before you spend a dollar on development. You cannot prove movement you never measured.
• Point the investment at the gap. Nearly half of Australian businesses admit their training budget is not aimed at their real skills gaps (RMIT Online). Aim it deliberately.
• Measure the shift, not the consumption. Re-assess capability after the intervention and report the change in capability next to the change in completions. Only one of those numbers tells the board something it cares about.

Capability is HR’s seat at the productivity table

The Jobs and Skills Report 2025 carried the subtitle “Connecting for Impact: Aligning Productivity, Participation and Skills”. The link between skills and national productivity is now official framing. The opening for HR is to own the part of that equation nobody else can touch: turning a workforce’s capability from an assertion into a measured quantity.

Until we can connect what we develop to whether the work gets done better, HR will keep being handed the productivity problem and judged on it without the tools to answer. The teams that learn to measure capability rather than only activity are the ones that will finally earn a seat where the productivity decisions get made.

Ben Satchwell is head of capabilities at Acorn.

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