This content originally appeared on HackerNoon and was authored by DJCampbell
In the pantheon of economic metrics, few enjoy the undeserved reverence that "productivity" does. Politicians chant it like a prayer. Economists bow before it. Central banks cite it to justify wage suppression and tax cuts for capital. But behind the polished numbers and authoritative graphs lies a sleight of hand so brazen it borders on satire.
At the heart of this con is Gross Value Added (GVA), the cornerstone of productivity calculation. According to the ABS and the Productivity Commission, GVA is defined as:
GVA = Output − Intermediate Consumption
Output is what a business earns from selling goods and services. Intermediate consumption includes all the inputs used up in the process — materials, subcontractors, fuel, rent. What's left is GVA, which includes wages, profits, rents, interest, and production taxes. In short, it's the economic value retained by the producer.
To calculate productivity, economists divide GVA by hours worked:
Labour Productivity = GVA / Hours Worked
And this is where the metric unravels.
In service economies — which now dominate developed nations like Australia, the US, and the UK — labour is often not just an input, it's also the output. A psychologist, a plumber, a management consultant: they sell their time, not things. Their income is the output.
So when we measure productivity in these sectors, we are effectively saying:
"How much does this person or firm charge per hour, minus their basic expenses?"
In a self-employed tradie's case, if they charge $120/hour and spend $20/hour on fuel and tools, their GVA is $100/hour. Productivity? $100/hour. If they raise their fee to $150 without changing anything else, productivity jumps to $130/hour. No new skills. No new effort. Just price.
That’s not productivity. That’s market power.
The problem deepens when we look at financial services. In 2012, the Productivity Commission noted that over 77% of finance sector output is derived not from actual services rendered, but from an imputed measure called FISIM (Financial Intermediation Services Indirectly Measured). It’s a fancy way of saying "the margin between deposit and loan rates." In other words, banks make more money by charging higher fees and paying less interest — and this is counted as productivity.
So yes, if we want to raise national productivity, we could just jack up bank fees. Or insurance premiums. Or legal retainers. Or gambling revenue. That’s literally how the metric works.
Meanwhile, the nurse, the teacher, the aged care worker — those who deliver undeniable, tangible human value — rank low on productivity measures. Not because they’re inefficient, but because they’re underpaid.
This content originally appeared on HackerNoon and was authored by DJCampbell
DJCampbell | Sciencx (2025-07-12T19:00:12+00:00) Productivity Metrics are a Scam. Retrieved from https://www.scien.cx/2025/07/12/productivity-metrics-are-a-scam/
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