"This compares to an average annual rate of 1.4 per cent over the past 15 years, and 1.6 per cent over the past 30 years," it says.

Turns out all the angst was caused by not much more than the figures being distorted by the mining industry's construction boom.This after our top econocrats gave speech after speech urging "more micro reform" to improve productivity and keep living standards rising. (They'd have advocated more reform even if productivity was improving at record rates; its supposed weakness was just a convenient selling proposition.)Meanwhile, the business lobby groups, led by the Business Council of Australia, claimed – without any evidence – the supposed weakness had been caused by the "reregulation" of wage fixing under Labor's evil Fair Work changes, and demanded the balance of bargaining power be shifted yet further in favour of employers. (A claim even the Productivity Commission wasn't convinced by.)Even at the time, it seemed the contortions of the mining industry during the decade-long resources boom were a big part of the story, but that didn't stop people who should have known better going into panic mode."Despite concerns", the paper by Simon Campbell and Harry Withers, says with masterful understatement, "Australia's labour productivity growth over recent years is in line with its longer-term performance."In the five years to 2015-16, labour productivity in the whole economy has grown at an average annual rate of 1.8 per cent.Let's take a step back. Productivity compares the quantity of the economy's output of goods and services with the quantity of inputs of resources used to produce the output.When output grows faster than inputs – as it does most years – we're left better off. This improvement in our productivity is the overwhelming reason for the increase in our material standard of living over the years and centuries.Productivity can be measured different ways. The simplest (and least likely to be inaccurate) way is to measure the productivity of labour: growth in output per worker or, better, per hour worked.Labour productivity improvement is caused by two factors. The first is by increases in the ratio of (physical) capital to labour used in the economy.This known as "capital deepening" – translation: giving workers more tools and machines to work with, which makes them more productive.The second driver of labour productivity is improvements in the efficiency with which labour inputs and capital inputs are used, arising from such things as improved management practices. This is known as MFP – multi-factor productivity.In recent years the figures have shown multi-factor productivity growth to be zero or even negative, causing great concern among some economists, including the Productivity Commission.But Campbell and Withers argue this focus on MFP is misplaced. They remind us that MFP is calculated as a residual (the product of a sum), meaning its likelihood of mismeasurement is high.And they criticise the conventional view that physical capital should grow no faster than output – known as "balanced growth" - because capital deepening is an inferior source of productivity improvement to MFP.People take this view because (making the unrealistic assumption that the economy is closed to transactions with foreigners) increased investment in physical capital must come at the expense spending on consumption.The authors point out that achieving improved MFP isn't costless, while the price of capital goods (most of which are imported) has fallen persistently relative to the price of consumption goods."This has allowed Australia to sustain its high rate of capital deepening without forgoing ever higher levels of consumption," they say.Actually, they say, our economy has never fitted the "balanced growth" story. Of the 30-year average of 1.6 per cent annual growth in labour productivity, MFP contributed only 0.7 percentage points, while capital deepening contributed 0.9 points.Next the authors examine the causes of the ups and downs in labour productivity improvement overall by breaking the economy into six sectors: agriculture, mining, manufacturing, utilities, construction and services (everything else).They find that labour productivity in agriculture is now 2 1/2 times its level in 1989, but it's too small a part of the economy – 2.5 per cent – for this to make much difference to the economy-wide story.The utilities sector showed strong productivity growth until the turn of the century, before steadily declining through to 2011-12, mainly because of one-off developments such as the building, then mothballing of many desal plants.The story of mining is well-known: its productivity fell because of the delay between companies hiring more workers to build new mines and gas facilities and that extra production coming on line. Since 2012-13, however, mining productivity has shot up. What a surprise.Productivity in manufacturing and construction has grown at similar rates to the economy overall, as has productivity in the services sector (hardly a surprise since services now account for 70 per cent of gross domestic product).Over the past five years, more than half of our total labour productivity improvement was attributable to the services sector, compared with about a quarter attributable to mining.Apart from productivity improvement in the various sectors, overall productivity can be affected when changes in the industry structure of the economy cause workers to shift from lower-productivity sectors to higher-productivity sectors, or vice versa.Because mining, being highly capital-intensive, has by far the highestof labour productivity, the authors say it's really only when workers move in or out of mining that structural change has much effect on economy-wide productivity."These movements of labour into and out of mining have been the key driver behind the fluctuations in ... aggregate labour productivity growth," the report concludes.Now they tell us.