Structural change in Australian industries – insights from the KLEMS Multifactor Productivity 2019-20 dataset


Over the past two years, COVID-19 has had profound impact and has accelerated changes in the Australian economy. The industry level KLEMS multifactor productivity (MFP) dataset, containing detailed information on industry inputs’ cost shares and their contributions to output growth, can provide insights into changes to industry structures. This article highlights the potential industry analysis that can be done using the latest KLEMS MFP dataset, covering the period between 1995-96 to 2019-20. The next annual publication of the dataset is scheduled in November 2022 and contains the data for the reference period 2020-21.

Structural change refers to shifts in the way an economy, industry or market operates. It can play an integral role in facilitating a country’s economic growth and enhancing the living standards of its citizens. In recent decades, Australia experienced fundamental shifts in economic activity, from agriculture and goods-producing industries to services industries[1]. In 2020-21, the services industries represented almost 80% of Australia’s gross domestic product. Shifts in structural composition can be triggered by government policies or market-related developments such as technological innovations and outsourcing trends. In either case, the process of structural adjustment has an impact on an industry’s input mix and productivity.

Structural changes can be assessed by examining compositional changes within an industry’s productive process. For example, the reallocation of resources to different inputs can raise aggregate productivity and result in economic growth. The analysis below examines the compositional changes in industry inputs over time for selected industries to better understand structural changes in the Australian economy and their impact on productivity[2].

Industry level KLEMS MFP dataset

The industry level KLEMS MFP dataset provides detailed information on the inputs contributing to output growth and production efficiency. Inputs are classified into five categories: capital (K), labour (L), energy (E), materials (M) and services (S). Industry nominal cost shares are published for each input in the dataset and reflect changes in the input mix over time[3]. The dataset also includes detail on growth accounting of industry gross output, which can facilitate analysis of the origins of industry productivity growth.

As each input has a distinct role in the production process, the KLEMS MFP dataset can highlight how industries interact. One key interaction is that the intermediate inputs components (E, M and S) reflect renting, hiring and out-sourcing between industries. These shifts and interactions are captured in the KLEMS dataset and can be examined to determine industry structural and compositional changes.

Cost share analysis

Table 1. Changes in industry input cost shares between 1995-96 to 2019-20 (%)
Capital services (K)Labour services (L)Energy (E)Materials (M)Services (S)
Agriculture, forestry and fishing3.5-2.03.2-6.01.3
Electricity, gas, water and waste services-5.2-5.71.5-2.111.5
Wholesale trade-1.5-0.1-0.3-2.44.2
Retail trade4.08.10.6-4.7-8.0
Accommodation and food services3.13.10.8-15.68.7
Transport, postal and warehousing3.00.12.1-3.4-1.8
Information, media and telecommunications-
Financial and insurance services1.9-5.60.4-0.73.9
Rental, hiring and real estate services4.93.30.6-2.1-6.8
Professional, scientific and technical services4.45.70.0-3.0-7.1
Administrative and support services0.420.5-0.4-4.7-15.8
Arts and recreation services3.7-0.6-0.2-5.93.1
Other services-0.76.8-0.2-8.12.3

Over the 25-year period, from 1995-96 to 2019-20, the following changes in industry cost structures were observed:

  • Capital services: cost shares increased in eleven of the 16 market sector industries, most notably in Mining.
  • Labour services: accounted for the largest cost share changes in eight industries, with the largest gain in Administrative and support services.
  • Energy: changes in cost shares were small relative to the other inputs (K, L, M, S) reflecting the stability of this component to the productive process.
  • Materials: the decline in cost shares was broad-based, with shrinking cost shares observed across all industries. The largest fall was in Accommodation and food services.
  • Services: changes in cost shares were significant for many industries. Ten industries showed a rise in services cost share. Broadly, the industries with growing shares in the services input saw falls in the labour component and conversely those which experienced falls in services inputs, experienced rising labour input cost shares. The largest cost share gain was recorded in Electricity, gas, water and waste services, while the largest drop was in Administrative and support services.

Selected industry analysis

The analysis below shows the industries with the largest changes in cost shares over the period 1995-96 to 2019-20. The largest cost share change for capital services was in Mining, while Administrative and support services recorded the largest change in labour and services cost shares. Accommodation and food services experienced the largest change in cost share for materials.


Strong growth in capital costs shares reflects rapid expansion during the 2003-04 mining investment phase and the 2017-18 boost in resources production.

The mining industry, typically capital intensive, experienced two clear structural changes since 1995-96 (Figure 1). The first occurred from 2003-04 to 2006-07 where capital cost shares dwarfed all other inputs, and the second from 2011-12 to 2015-16 where the rising prominence of services peaked in the industry.

In 2006-07, cost shares for capital services accounted for more than 50% of total costs. The previous eight years saw sharp upward gains in capital costs, widening the gap between services cost shares and peaking at 2006-07. The strength can be traced back to the mining investment boom in Australia, with strong global demand, particularly from China and other emerging economies. The strength in capital investment outpaced production volumes as new mines were yet to come online. This resulted in weak productivity growth during this period (Figure 2).

From 2011-12 to 2015-16, a second shift in the input mix can be seen. Services cost shares began rising, peaking in 2015-16 and overtaking capital as the primary cost for the industry. Behind the increasing prominence in services were two key factors:

  1. A ramp up in the construction phase of LNG projects in Queensland and Western Australia, which resulted in the increased use of heavy machinery rentals.
  2. A requirement to sustain and maintain existing metals and minerals mines, resulting in growth in construction trade services and repair and maintenance services.

Capital cost shares fell during this time due to the strong growth in services. While capital service cost shares dropped sharply, the contribution to output growth between 2011-12 and 2013-14 remained strong (Figure 2)[4]. This strength was linked to growth in private gross fixed capital formation, attributable in part to construction on major LNG projects. The strength also reflected a build-up in productive capital stock for the industry from other projects.

The high levels of mining investment had a marked impact on KLEMS MFP. Strong investment and production lags reduced measured productivity. As infrastructure transitioned from construction to production, output growth increased, and KLEMS MFP began to grow. KLEMS MFP has maintained solid growth since 2013-14.

Accommodation and food services

A steady decline in the prominence of Materials shifted the industry focus to Labour services following the Global Financial Crisis.

Accommodation and food services is a labour and materials-intensive industry. In 1995-96, the combined materials and labour inputs accounted for more than 75% of the industry’s cost share but this has been decreasing from 1997-98 (Figure 3). The falls in cost shares of labour and materials (most prominent in materials) between 1997-98 and 2007-08 was offset by gains in services. From 2007-08 to 2012-13 a significant transformation in the industry cost structure became evident as the industry became more reliant on labour and capital inputs.

The Global Financial Crisis (GFC) played an important role in the compositional change in cost structures in this industry. The Accommodation and food services labour market showed resilience to the economic downturn associated with the GFC. Growth in this industry’s employment and hours worked was solid, especially compared to the average of other industries. This was partly attributable to favourable policy changes in the Migration Occupations in Demand List[5] and accelerating growth in vocational courses relevant to this industry.

Conversely, the economic conditions following the GFC increased cost pressures on businesses due to falls in overseas arrivals, a rising Australian dollar and households reducing non-essential expenditure. As a result, businesses operating in this industry substantially reduced expenditures on services including travel and agency services and lease services as well as materials, particularly beer and alcoholic beverages.

The GFC also adversely affected productivity growth in this industry (Figure 4). Prior to the GFC, KLEMS MFP experienced solid gains, contracting only once in 1999-00. However, following the GFC productivity performance fell in line with weaker output growth. The Accommodation and food services industry was heavily impacted during the COVID-19 period. Containment measures including border closures and lockdowns resulted in reduced hours worked and business turnover. This may impact the industry’s cost structures and productivity growth in the years to come.

Administrative and support services

The substitution of Services for Labour drove early and sustained compositional change as the economy’s demand for administrative services rose from the late nineties.

The Administrative and support services industry experienced the greatest compositional change of the sixteen market sector industries since 1995-96 (Table 1). A clear shift from the use of services to labour can be seen in Figure 5, particularly from 1997-98 to 2003-04. The growth in labour services from the mid-nineties exceeded growth in services, with labour cost shares rising from 38.7% in 1997-98 to 55.6% in 2003-04. Since then, there has been a clear preference for labour services resulting in a sustained change in the industry’s input mix. Meanwhile, the relative importance of services declined, remaining well below labour cost shares for the rest of the timeseries.

The growth in labour services was supported by expansions in the following sub sectors:

  • Labour supply and employment placement and recruitment services
  • Travel agency and tour arrangement services
  • Call centre operations

The advancement of technology, particularly the use of the internet in core business activities, enabled the growth of these labour-intensive industries[6], driving up the labour cost share.

Despite the growth in labour services, intermediate inputs driven by services contributed positively to output growth during the late nineties (Figure 6). This was largely due to the continued outsourcing of legal, accounting, and office administration services as firms expanded to meet demand during this critical period. The steady growth in the use of services was exceeded by the rapid and more costly growth in labour inputs, resulting in the contraction of services cost shares (Figure 5).

KLEMS MFP was negatively impacted by the strength in labour services, growing only in four of the eighteen years to 2012-13. In the subsequent years, as the growth in labour services weakened, KLEMS MFP increased (Figure 6).


[1] The service industries include all industry divisions except for Agriculture, forestry and fishing, Mining, and Manufacturing.

[2] This article complements the research in Services in the Australian economy.

[3] Cost shares for inputs are determined by their respective shares in the current price value of industry gross output. For more information, see 5260.0.55.003_klems.pdf (

[4] The growth accounting framework for contributions to industry’s output growth is detailed in 5260.0.55.003_klems.pdf (

[5] see Overseas students: immigration policy changes 1997–2015.

[6] The Australian Recruitment Industry (KPMG, 2016).


ABS (2015), Australian National Accounts: Input-Output Tables (Product Details), 2012-13, cat. no. 5215.0.55.001, ABS, Canberra

ABS (2021), Australian National Accounts: Input-Output Tables, 2018-19, ABS, Canberra

ABS (2021), Australian System of National Accounts, 2020-21, cat. no. 5204.0, ABS, Canberra

ABS (2021), Estimates of Industry Level KLEMS Multifactor Productivity, 2019-20, cat. no. 5260.0.55.004, ABS, Canberra

ABS (2015), Information paper: Experimental Estimates of Industry Level KLEMS Multifactor Productivity, 2012-13, cat. no. 5260.0.55.003, ABS, Canberra

ABS (2019), Services in the Australian economy, 2017-18, Australian National Accounts: Supply Use Tables, ABS, Canberra

Adeney, R. (2018), ‘Structural Change in the Australian Economy’, Reserve Bank of Australia Bulletin, March 2018, Available at: Structural Change In The Australian Economy ( [11 May, 2022].

Chevron Corporation (2017), Fact sheet: Gorgon project milestones summary, Available at: Gorgon-Project-Milestones-Fact-Sheet.pdf ( [11 May, 2022]

Chevron Corporation (2017), Fact sheet: Wheatstone overview, Available at: wheatstone-project-overview.pdf ( [11 May, 2022]

KPMG (2016), The Australian Recruitment Industry. Available at:

Spinks, H. (2016), Overseas students: immigration policy changes 1997-2015, Available at: [11 May, 2022].

Tulip, P. (2015), ‘The Effect of the Mining Boom on the Australian Economy’, Reserve Bank of Australia Bulletin, December quarter 2014, Available at:, [11 May, 2022]

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